Welcome To Factoring Force
We are pleased to present you with the information that you will need to make decisions about invoice factoring or factoring receivables. It is essentially a simple concept and one that can be a great help to your business if managed properly. It may not be appropriate for you and, as a business owner, you need to have as much information as possible to make that determination. Hopefully, the information you find here at Factoring Force will help you make the best decision for your business.
Factoring Receivables – Good or Bad Short Term Financing?
 Every business owner knows how difficult it is to obtain the capital funding necessary to grow the business. Sometimes, short-term funding is necessary to meet cash flow challenges. Standard financing can be difficult to obtain and even when available can take time to process. One option to address these situations is to take advantage of accounts receivable financing or factoring receivables. Each business owner must assess the wisdom of taking advantage of this approach.
How does receivables factoring work?
Factoring receivables is the practice of selling existing invoices or receivables to a company that assumes the responsibility of collecting on these bills. The factoring company purchases these receivables at a discount which provides cash on an almost immediate basis to the business. Normally the factoring company provides from 80-90% of the face value of the invoices. The balance is provided to the selling company once the factoring company collects on the bills. The factoring company keeps a small percentage as a service fee.
The age of a receivable determines the value to the factoring company. A more recent invoice will command a higher payment. A factoring company will typically not accept invoices older than 90 days.
Advantage of Factoring Receivables
The main benefit of factoring is to free up cash. The time that cash is tied up in the receivables cycle is eliminated with factoring. Rather than wait for this money to come in, the business owner can count on a smoother cash flow and plan the business accordingly.
Another benefit is that factoring receivables can help companies to avoid debt by providing dollars that they may have had to borrow otherwise to address certain business needs.
Lastly, businesses can avoid the hassle of collections by essentially turning this function over to the factoring company.
What to Consider
Even though there is a definite advantage to having cash in hand, there is a cost also. Factoring fees can range from 1-5% and if this becomes a regular practice can, in some cases, exceed the interest on a loan. Since rates vary by company, make sure that you shop around for the best rates.
You should make sure that the circumstances that are prompting the factoring of receivables are not indicative of a larger problem. If you need the cash provided by factoring to keep your business afloat then you should take a serious looka t your costs, pricing and your business plan.
Make sure that you take the time to investigate the factoring companies that you are considering. There is little regulation of this industry so read any contracts or agreements thoroughly. And remember, the company that is factoring your receivables is also collecting from your valued and valuable companies. Make sure that no bridges are burned in the process.
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