Is your business short in cash due to “slow” paying customers? It can be difficult for your business to proceed while you are waiting for your money to come in. Factoring your invoices (accounts receivables) is a simple way to quick funds – allowing you to focus on growing your business while a third party collects the moneys owed to you.

When factoring, the ownership of your accounts receivable are transferred to a factoring company. From the invoices you provide them, you can be advanced up to 90% of the money owed to you. Then they pay the balance (with the factoring fee) after your clients pay off their invoices. The funds can be used however you want…no questions asked.

Factoring helps all business sizes and success. It takes you out of the collection process…one less thing to worry about.

Pricing Guideline

Factoring service costs are between 1%-5% of the outstanding accounts receivables. The following criteria determines the factor rate:

• Volume
• Customer Base
• Industry Risk
• Client Credit History
• Type of Billing

How Factoring Works

The process starts by providing the factor company copies of the invoices that you want funded. Once the terms of your agreement are set, the funds are transferred to your bank account. You will be advance within 24 hours…many companies advance in 2-5 Days!

To determine what invoices can be advanced, the factor will research your clients to ensure credit-worthiness and on-time payments. Then the original invoices will be reviewed for signatures, changes, and dates. Corrections are made if there are any discrepancies. When the invoices are validated, the clients will receive a “notice of assignment” from the factor. The notice states that all payments will be paid to the factoring company.

Once the factor receives payments from your clients, you will wired the remaining of the invoice balance minus the factoring fee (1%-5%).

Benefits of Factoring

• No Collateral
• No Financials
• No Credit
• No Reference Check
• No new debt is created

Types of Factoring: Recourse and Non-recourse

Recourse factoring is generally more common and more affordable. With recourse factoring, the client and the factor share the risks. The factoring company will fund your advance, requiring a refund plus the fee. The rate comes out better because you assume most of the risk. Non-recourse factoring is a good option if you do not want to share the risk. You are released from any responsibility for clients who do not pay. This option is more expensive because the factor takes on more risk. Be mindful that the factoring companies are not collection agencies – they do not chase your clients for payments. If there are any disputes, the factor will have the client contact you.

Advice

• Shop around. Always speak with more than one company to ensure the best rate.
• Always consider the skills and the service of the company. It’s always worth to spend a little to receive the best service to prevent headaches.
• You can choose the invoices you want to advance…no need to provide all.
• Contact your clients of the changes to prevent concerns.
• Factors who belong to national organizations typically better serve their customers.