Factoring is a common process in the business world.
Factoring is the process of selling your accounts receivable invoices to a third party who then is in charge of collecting on the invoice. The agents in charge of collecting are called factors. Factoring for business is a great way to provide financial growth.
Since cash flow is so essential in business, factoring is the best method to expand operations.
Factoring allows a company to sell invoices at a discount and be paid a cash advance before the invoice comes due. Since many businesses monthly sales do not produce cash on time, factoring is a great method to pay wages and creditors.
One of the great things about factoring is that it does not tie up assets outside the business and does not involve repayment of debt at some future point in time.
Like any other service, factoring does cost a portion of your sales. To offset the costs of factoring, many companies increase prices or look for supplier discounts.
Factoring fees are determined by 4 variables:
- Risk - credit worthiness of your customers.
- Maintenance - work involved in the A/R.
- Time - How long your customer takes to pay.
- Volume - The higher the volume, the lower the fees.
Many companies use factoring as a means to improve cash flow.
The key factor is to weigh the cost against the benefit of having the cash on hand sooner rather than later. Factoring for business is usually an ideal solution for obtaining growth.
Factoring allows a small business to secure cash advances against outstanding invoices, rather than using personal assets to secure a loan.
Many companies struggle with collecting money from customers.
Collecting past due money ensures cash flow to support growth of the company. Relying on a factoring agent to perform the role of collection is useful for businesses as they have less time to dedicate toward this.
Why does factoring help improve your business?
Factoring allows selling invoices to a third party at a discount, giving you money to pay your expenses.
Factoring is a powerful funding tool for supporting growth.
Factoring allows for funds to be in your account quicker than waiting for invoices to be paid.
Factoring is easy to use.
Factoring assures that who you do business with is credit worthy.
Factoring allows for invoices to be collected in a professional and consistent manner.
Factoring is a step up the financial ladder to improving your overall cash flow.
Again, factoring does not use personal assets as a way of funding companies.
Factoring does not have a limit on qualified invoices.
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