Entrepreneurship- What is Factoring

What is Factoring?

Do you have clients that take 30, 50 or 60 days to pay their invoices? Although having slow paying clients is expected in today’s business environment, they make managing cash flow a very difficult task. Paying suppliers, salaries and rent becomes a challenge.

However, there is a way to solve this problem. The solution involves factoring your invoices.

Invoice factoring is a financing tool that allows you to get your invoices paid in as little as 2 days. It provides your company with the necessary capital to operate the business, pay suppliers and grow. However, factoring is not a business loan. Rather, factoring involves selling your invoices at a discount for immediate cash. The factoring company waits to get paid, while you get immediate use of the funds.

Receivables factoring can easily be integrated to any business and works as follows:

You deliver goods or services and invoice for them

You sell the invoice to the factoring company. They give you the first installment of 70% to 90% of your invoice. This is called the advance.

You get immediate funds to run your business

Once the customer pays the factoring company, you get the second installment (of 10% to 30%) and are charged a small fee for the transaction. This is called the rebate

Although factoring costs vary and are based on transaction size and timing, the average cost of a transaction is usually between 1.5% to 3% of the invoice per month.

One major advantage of accounts receivable factoring is that it is easier to obtain than a business loan. Furthermore, the factoring line can be set up in about a week, and the biggest requirement for approval by a factoring company is that do you business with credit worthy clients.

http://www.evcclub.com/articles/?p=57

Business Financial Services

Entrepreneurship- What is Factoring