Turn Your Invoices Into Immediate Cash
Business owners often ask, “What is Factoring?” When someone talks about factoring, generally they’re talking about Factoring Accounts Receivable or sometimes called Invoice Factoring. This is a simple, easy and popular concept and sometimes the only way for a business to immediately solve its cash flow issues.
Factoring Accounts Receivable is where a business sells its accounts receivable invoices to a third party at a discount. The third party is called a Factor and the business submits an invoice to the factor and the factor immediately advances 80% to 85% of the invoice amount. When the factor receives the payment from the business’ customer, the factor deducts its fees and sends the business the balance of the 20% to 15% that was withheld. With this process, not only has the business increased its cash flow, but it compressed its sales cycle.
Invoice Factoring puts the emphasis on the value and credit worthiness of the business’ accounts receivables. Unlike when seeking a bank loan where the bank focuses on the profitability and value of the non-accounts receivable collateral such as equipment and real estate. Factoring lines are designed to grow with the business whereas a bank loan is for a fixed amount. Factoring lines are fairly easy to secure and quick to set up, whereas bank loans are difficult to obtain and are lengthy to process.
Things To Know To Get Started
- Processing fee is 3% of the invoice amount (rates can vary)
- Factor fee is 1% per week until the invoice is paid (rates can vary)
- Maximum advance amount ranges from 50 to 90% of the total invoice amount
- Amounts received depends upon the total amount and quality of the outstanding invoices
- Funds can be received as fast as in one business day
- Factoring is easier to qualify for than traditional loans
- Factoring is simpler than traditional loans
- Factoring is a shorter process than traditional loans
- Factoring is a good option for business to business (B2B) environments
- Invoices serve as collateral, so creditworthiness of the business isn’t as important
- Creditworthiness of the invoiced business is important
Examples Of Industry Candidates For Factoring
- Trucking and transportation companies
- Staffing companies
- Manufacturing companies
- Oil companies
- Gas companies
- Commercial landscaping companies
- Janitorial companies