What is Factoring?
Factoring is an asset based financing method whereby a company or business uses its commercial Accounts Receivable to generate immediate cash.
Having trouble getting a loan or line of credit for your business? Consider factoring your accounts receivable instead.
How does it Work?
A factor works by providing a cash advance based on the total value of the invoices that you provide as collateral. You typically receive 80 percent of the invoice value upfront. Then you receive the remaining value once the client pays the factor, minus a factoring fee. This fee can be structured in any number of ways, but it generally nets out to be about three to five percent of the invoice value.
To qualify for invoice factoring, your company must satisfy two basic conditions. First, you should have no existing primary liens on your accounts receivable. Essentially, this means that no other company should have a claim on payments when they come in.
Your customers must also be creditworthy. Factoring only works successfully if clients pay their invoices. Your company's creditworthiness will not necessarily factor into a decision to approve or deny your account. Instead, the factor will focus on evaluating your clients to determine whether and how quickly they will pay their invoices.
It is easy to get started!
- Complete the factoring application.
- Submit your complete A/R aging report.
- Provide copies of organization documents. (Articles of Inc./Organization/DBA Filing)
- Copy of any current contracts.
