Factoring Companies

Do you need fast and easy financing to build your company, to keep it running, or to help it grow? Many business owners, be they small or large business holders, require adequate financing in order to build, sustain or grow their companies. Banks can make it difficult for companies to get loans or lines of credit without substantial collateral. This is where factoring comes in. A factoring company will provide you with cash, fast, in return for the sale of your account receivables.

How a factoring company works

A factoring company specializes in the purchase of account receivables (A/R) from companies for cash. For a fee, a factoring company will pay money in return for unpaid invoices. The fee usually depends on the number of customers you would like to turn over to a factoring company, the size of the invoices and the risk the factoring company is assuming by purchasing these account receivables.

It is not a loan, but works in the same way in that it provides businesses with cash when they need it, so that they do not have to wait the 30 or 60 days it might take for their customers to pay their invoices. Unlike a loan, however, there is no debt incurred. Factoring companies, therefore, are often preferred to bank loans that leave you with debt and often demand collateral in exchange for a loan or a line of credit. With access to cash, a business can take advantage of discounted offers from suppliers, for example, using the money to sustain or grow the company.

For example, if you were to hire a factoring company, you would ship your customers their product along with an invoice for the amount due. This invoice would indicate that your customers should send all payment to the factoring company you are working with. The factoring company pays you cash as soon as they purchase your receivables, and they in turn get paid from your customers when they pay their invoices.

The benefits
There are numerous benefits that come from hiring a factoring company to handle your invoice collection. First, you reduce your risk once you sell your A/R to a factoring company. They pay you cash immediately, which means that the process of collecting payment for invoices is left in their hands. You don't have to worry about customers paying their invoices late or not paying them at all because you won't be at risk of losing money for it.

Furthermore, for companies that need cash now, factoring is the fastest way to easy and efficient financing. Bank loans take time and often require collateral. With factoring, all the collateral you need is your account receivables.

Disadvantages
With all the benefits associated with factoring, many people wonder if there are any disadvantages. First, hiring a factoring company will cost you money. This may be a negligible amount of money, but there are still costs associated with this service. So rather than getting the full amount owed on a customer's invoice, for example, selling your receivables to a factoring company at a discount will leave you with a portion of the invoice amount. Typical fees range from 2-4% of total. If your client has poor credit, the rate can go up to 6%. So in many cases, it is the credit of your customer which makes the biggest difference to the fees.

Overall, factoring is an excellent option for companies and businesses that require financing and aren't getting the service they need through traditional means.

Getting started is simpler than you think. Contact us here today to talk about asset based lending, or apply now to get the process started. We may be able to provide you with cash within 48 hours. Try getting that kind of service at your bank!

FAQ | Glossary | Process | Required Documents | Services
Accounts Receivables Outsourcing | Small Business Funding
Accounts Receivable Management | Business Receivable Factoring
Factoring Financial Services | Accounts Receivable Factoring Company
Factoring Accounts Receivables | Accounts Receivables Factoring