Factoring
Businesses rely on their clients to come through when it’s time for them to settle their accounts. But it can take weeks or even months for final payments to come through. If you need to bring in materials for the next order, you have limited choices. Rather than taking a risky high interest merchant cash advance, get the funds you need now by factoring your accounts receivable.
What is Factoring?
Outside of a math equation, most people aren’t familiar with the term “factoring.” In the financial world, factoring means selling your AR assets to a specific type of company called a “factor.” That company pays you a percentage of what your clients owe so you can keep business moving. When your client pays, they pay the factor directly and you get what’s left, minus the factoring fee.
Factoring is different from most forms of debt financing because you don’t get a one-time sum you have to pay back with interest. You can factor accounts as often as you need without going through a new application process. Once you’re established with a factor, you can easily upload your invoices, purchase orders, and contracts to their system. Get paid early for large accounts or a collection of smaller ones.
Factoring is not without risk, however. If your client fails to pay or asks for a refund, you’ll need to square the amount with your factor. The factoring fees are typically a small percentage of the AR value. It’s important to be aware of your lender’s fee schedule as it can vary depending on how long it takes your clients to pay their invoices.
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Unexpected Growth
Word is out that you’re the hottest new retailer in town. Orders are pouring in faster than you can ship them out. But you don’t have the cash to keep up with the supplies and materials you need to make your specialty products. Use factoring to get cash now so you can keep up with demand.
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Slow Clients
It’s a good idea to give your clients some leeway when it comes to paying their bills. But some clients habitually pay at the last minute. That can make it difficult to plan ahead for your own business expenses. Factoring brings in the money when you need it without being held to your clients’ timeline.
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New Projects
Are you waiting to launch your next big project but need your client’s payments to make it happen? Factoring their invoices or contracts will give you a head start so you can launch today. Enjoy the success of your new endeavor and impress your audience to grow even faster.
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F.A.Q.’s
Q. Is factoring a debt?
Think of factoring more like the sale of an asset rather than a debt. You are responsible for any fees the factor charges and may have to repay the funds if your client wants a refund or fails to pay the invoice. Otherwise, you won’t need to return any payments to your factor.
Q. When is factoring not the best fit?
For businesses that don’t invoice their clients, factoring isn’t a viable option. If you don’t have AR to sell, it’s not a good fit. Instead, we can show you a line of credit, term loan, or working capital loan that’s better suited to your needs.
Q. How many accounts can I factor?
This will depend on your factor and the relationship you have with your clients. Once you and your factor have an agreement, you’ll be able to factor accounts of a minimum value as often as you need. Most factoring can be done online in a matter of minutes once your initial application has been approved.
Q. What are factoring fees?
Factoring firms make their money by collecting fees for their services. They’re typically a fixed percentage based on how much the invoice is worth. The amount depends on your lender but is normally less than 4%.
No long-term interest charges.
You don’t need a high credit score.
Get paid in advance.
Most AR assets qualify.
You don’t need a high credit score.
Get paid in advance.
Most AR assets qualify.
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