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Factoring Benefits

Factoring Benefits You Can Use !

Account Receivable Factoring is a technique used by companies to manage their account receivables, enhance their cash flow, improve their bottom line and make it the next level.

Factoring Will Make Your Company Look Stronger

Factoring your account receivables is an “off the books” funding and payroll financing technique that will immediately make you business look stronger and more attractive to traditional funding sources. When you use factoring only your account receivables are involved. Your business can still use its other assets to borrow money at any time.

Factoring Allows You to Grant Terms of Payment

Often larger more secure companies will want to have terms of 30, 60 or even 90 days to use your business’s services. Factoring allows your company to offer these terms and still be able to make payroll and pay suppliers until your moneys arrive.

Factoring Enables You to Accept Large Contracts

When you have the resources of a factor working with your business. You will be able to plan for and bid on contracts without having to worry about how cash flows will work and payroll will be made. Your factor will provide you the money to cover your business’s expenses until your profits arrive.

Factors Can Provide Your Business Many of the Following Services:

  • Investigation of the credit risk of customers for their client;
  • Assumption of the credit risks of their client’s customers;
  • Collection of your business’s accounts receivable from customers;
  • Bookkeeping and reporting services related to collecting accounts receivable;
  • Provide expertise related to disputes, returns and adjustments;
  • When your business is partnered with a factor you can use their experience to enhance your credit services. This will reduce bad debt, streamline new customer approval, improve decision making on new business, and lower your administrative costs.

How Factoring Works

A business that grants payment terms to its’ customers will periodically sell its’ invoices to a financial institution known as a factor.The factor purchases acceptable invoices at a discount to their face value and makes an initial advance of 60 to 90 percent of their face value. The actual percentage varies depending upon the industry and age of the invoices.The amount not advanced is used for a reserve and provides a cushion against possible loss.The factor notices the business’s customers of the factoring arrangement and re-directs payment of the invoices to the factor’s address or a “lock box.”Upon receipt of payment from the business’s customer, the factor returns the reserved portion minus the factor’s fees.

Industries Using Factoring

Factoring is a beneficial form of financing for most industries, expecially ones where account realization does not match operational needs or where a large portion of invoices are not paid in time to meet payroll or other debt obligations. If a business makes or sells a product or service to a credit worthy commercial customer on terms that business is a good canidate for factoring. Businesses that are excellent candidates have many of the following characteristics;

  • A need for accelerating receipt of account receivable invoices.
  • A need for additional working capital required for operations contributing to revenue growth.
  • For any number of reasons, do not possess traditional lines of banking credit.
  • Have a desire to take advantage of trade discounts.
  • Experience periodic cash flow pressure due to seasonal demands or unexpected sales.
  • Business and Industry Suppliers