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Factoring

Access cash without adding debt to your balance sheet through Accounts Receivable Factoring.

Factoring Overview

If you work with customer invoices, you know there’s often a lag time between when you send the bill and when you get paid. In some industries, this lag time can be up to 90 days. That’s not a situation your creditors may always understand. So, when you need to cover expenses before your customers pay, look to factoring to get the cash you need quickly.

Factoring lets you sell accounts receivable assets before your customer settles their bill. It works like this: You sell your invoice, purchase order, or contract to a company called a “factor.” That company buys it from you at a percentage of its value. When your customer pays, they pay the factor directly. The factor then recovers the funds they paid and sends the remainder on to you, minus a factoring fee.

How to Effectively
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The cash you bring in from selling your AR assets is working capital. So, you’re free to use the funds anywhere your business needs them. That could mean covering utilities and payroll for the month. Or, you could bring in supplies and materials that enable you to take on more orders faster.

Factoring is effective when you need a cash boost but don’t have time to wait for the banks. No collateral is required and you can receive your funds in just a few hours. Factoring comes in different shapes and sizes so your business can find the right fit. Ask your broker to show you the most competitive factoring options.

Factoring Options

Invoices

Do you find yourself holding off on bidding for a new job or taking on a bigger customer because you’re waiting for payment from other clients? Sell that invoice to a factor and get the cash you need for supplies, materials, labor, and equipment right away. Then take the next step in growing your client base.
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Purchase Orders

Governments, contractors, and other businesses use purchase orders to manage inventory and eliminate confusion. But when a large order comes in, you need to have the materials on hand to handle it before your client pays. Factoring lets you get the resources you need now to make your clients happy.
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Contracts

Consistent, reliable customers are key for any business. But you can also leverage your contracts with those customers to get cash for your immediate business needs. Sell your contracts to a factor to increase cash flow and offload your accounts receivable tasks. Ask your broker to find out how factoring can benefit your business.
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F.A.Q’s

Q. Do I have to pay funds back to a factor?
Factoring is not a loan. The factor recovers its funds when your client pays their invoice. Most factors charge a fee for their services that you’ll need to cover, but once you’ve sold the invoice, you don’t need to pay back the factor for the purchase amount.
Q. What is the difference between factoring and invoice discounting?
The simple answer is that invoice discounting is a loan and invoice factoring is a sale. With invoice discounting, you borrow money until the invoice is paid. With invoice factoring, you sell the invoice and the customer pays the factor directly.
Q. How much does factoring invoices cost?
Most factoring companies charge a small fee for their services. This is a percentage of the invoice or purchase order you factor, typically between 1.5% and 3%. Rates vary by lender and how long your client takes to pay their invoice.
Q. Are there downsides to factoring?
Although factoring is a quick and easy way to bring cash into your business, there are some considerations. If your client refuses to pay their invoice, requests a return, or disputes the charge, you may have to repay the factor yourself.

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