Factoring

A factoring specializes in financing invoices from businesses that have cash flow problems due to slow-paying customers. Factors don’t lend money. Instead, they purchase the accounts receivable from their clients at a small discount. The client gets immediate funds for the receivable. The factor holds the invoice and makes a small profit when the invoice is paid by your client.

Industries that use factoring

For the most part, factoring can be used in any industry where goods or services are sold and paid for in net-30 to net-60-day terms.

The following businesses and industries regularly use factoring:

• Trucking
• Freight brokers
• Owner-operators
• Business services
• Staffing agencies
• Manufacturing
• Wholesale
• Janitorial
• Technology
• Courier services
• Security services
• Consulting
• Call center operators
• Cell tower construction and maintenance

• Medical offices
• Hospitals
• Diagnostic centers
• Private investigators
• Oilfield services
• IT consultants
• Landscaping
• Import
• Office supply
• Distributors
• Food service
• Logistics
• Advertising
• And more

Advantages of working with a factoring company

The main advantage of working with a factor is that your cash flow improves immediately. You don’t have money tied up in slow-paying accounts receivable. Instead, you have cash-at-hand to pay expenses and take on new clients.

Additionally, factoring can also:

• Help you with business credit decisions
• Help handle collections
• Increase financing lines quickly
• Work with new businesses
• Work with turnaround situations

Is a factoring company right for me?

Usually, factoring financing helps your business if the following is true:

1. Your commercial/government clients pay in net-30 to net-60 days
2. Your commercial clients have good credit, and
3. Slow payments are causing cash flow problems

            If items 1-3 apply to your company, financing your invoices can help improve your cash         flow.

How does invoice factoring work?

Transactions are simple and are structured as the purchase of your receivable. Your invoices are purchased in two installments.

The first installment is deposited to your bank account as soon as you sell the invoice. The initial advance varies by industry but ranges from 70% to 90% of the invoice amount.

The second installment is deposited to your bank account as soon as your client pays the invoice. Keep in mind that your client does not need to pay sooner – they can pay on their regular schedule. The second installment covers the 10% to 30% that was not initially advanced, less the financing fee.

How much does factoring cost?

The cost of factoring is determined by your financing volume and the credit quality of your invoices. In general, fees range from 1.15% to 3.5% per month. Fees can be prorated to suit your needs (e.g., 0.5% per 10 days).