Why Factoring?

Factoring Basics

Factoring is a business financing tool that unlocks cash from accounts receivables, increasing the liquidity of your working capital.

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Businesses often fail for lack of access to capital

Undercapitalization is among the top reasons why small businesses fail — often not because they’re not growing enough, but because they’re growing too much, beyond their means. While some companies can make up that shortfall by raising capital from either friends and family, venture capitalists, banks or other sources, many find themselves constrained to the point where they are either unable to continue growing or forced to scale back operations. In some cases, businesses end up selling or closing shop.

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Factoring can help businesses by exchanging invoices due in 30-60 days for immediate cash

The company seeking funding presents the current invoices it wants to sell to the factoring company, or factor, who then purchases the invoices at a discount. Upon the sale, the factor gives the seller an advance, usually 70%-90% of the face value of the invoices. The remainder is rebated when the invoice is paid. Factoring is not the same as collections; only current invoices can be factored. Past due invoices normally cannot. There are variations to this arrangement, but this describes the basic process.

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Companies that use factoring effectively share a few characteristics

Have reliable commercial customers Are growing and need capital to fulfill operating expenses Provide or need to provide 30-60 day payment terms Want to outsource its accounts receivable function, partially or totally However, factoring is not for everyone – some companies will be better served by using other forms of commercial finance, and we’ll be happy to explore these alternatives with you.


Factoring Benefits

By selling your current invoices, you can have your cake and eat it too: offer trade credit to your commercial customers and at the same time fund your operations from the invoices you generate. Factoring your invoices can also provide other benefits that will help your business thrive, such as the outsourcing of your customer credit and accounts receivables function.

Enhance your cash position

Factoring can smooth out your cash flow

  • Access an unlimited credit line.
  • Use the funds without restriction.
  • Receive vendor discounts by paying suppliers with cash.
  • Build your credit score by paying your bills on time.

Outsource your accounts receivables function

Stop worrying about getting paid and focus on your business

  • Outsource your customer credit function.
  • Outsource invoice generation and other billing services.
  • Monitor your accounts receivables and track your customers’ payment habits.

Increase your sales and improve customer service

Increase your revenues in a financially sustainable way

  • Accept orders you might have had to turn away.
  • Extend credit to desirable customers instead of lowering prices.
  • Reduce the risk that your customers will take trade discounts and still take 30+ days to pay.

Invest in your success

The cost of factoring is comparable to trade credit, and in many situations it is well worth the investment.

  • For many companies, the return from investing the proceeds from factoring back in your business will by far exceed the cost of factoring.
  • The cost of factoring is based on two elements: the time value of money and the risk the factor incurs by purchasing your invoices.
  • The resulting cost is often lower than trade credit, so you win twice: you get your cash now and you pay less for it.