WHAT IS FACTORING?
Factoring is a transaction in which business sells its invoices to a third party financial company known as a factoring company. The invoices are purchased at a discount of the face value. The factoring company notifies their client's customers of the arrangement and collections are then easily passed to the factoring company.
Cash flow problems can occur when a company has to wait 30 to 60 days to get paid for the services provided. Factoring solves that problem by providing liquidity to the business. It is the most popular source for transportation companies to quickly generate cash flow. Instant cash that is provided by factoring your accounts receivables can be used to cover business expenses such as payroll, fuel, maintenance, taxes, insurance, or even purchase of new equipment.
BENEFITS OF INVOICE FACTORING
- Improved cash flow:
Stop waiting to get paid on your invoices. Invoice factoring provides immediate cash you can use to achieve your business objectives.
- Reduced operating expenses:
Eliminate much of the overhead cost of managing your own accounts receivable collection process.
-Improved credit ratings:
With cash in hand, you can pay your bills more quickly, and possibly take advantage of some discounts for early payment, which can improve your company's credit ratings.
- Stronger balance sheet:
Because factoring is not a loan, it doesn't appear on your company's balance sheet as an expense.
- Alternative to loans or borrowing money:
Factoring your invoices is an easier way to get money for your business needs.
Factoring vs. a Bank Loan
- The amount of money you can finance grows as your receivables grow.
- Factoring is not a loan. You assume no debt.
- You can qualify for factoring regardless of your credit score. Factors are more concerned with your customers' credit strength.
- It only takes a few days to set up an account.
- Funding can take place in less than 24 hours.
- Minimal paperwork and documentation are
required to start factoring.
- Some factors handle collections of your accounts receivable and provide additional back-office services.
- Rates can be adjusted as you finance more money through factoring.
- Some factors provide credit reports and other information on your existing and potential customers.
- The money you borrow comes with a cap or a limit.
- You repay principal and interest on your loan.
- Qualifying for a loan requires a review of your company's financials, assets and liabilities, and credit history.
- Securing a loan or line of credit takes up to two months.
- Once your loan is approved, you have immediate access to those funds.
- Extensive paperwork, financial statements and personal information are required.
- No accounts receivable or back office services are provided.
- Your annual percentage rate is locked long-term,
or for the life of the loan.
- No credit services provided, which means you manage your own credit policy.