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The following article was published in our article directory on March 3, 2015.
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Invoice Factoring How Firms Can Obtain Money

Article Category: Business

Author Name: Bill Southard

The recent condition of the country's economy has not been good for businesses. With a weaker dollar, higher food costs and soaring power prices, many corporations are evaluating their operations and lessening costs anywhere they are able to, typically through employee layoffs and eliminating vendors. Existing and potential entreprenuers usually aren't faring better, as banks and other lending institutions are also tightening their belts and denying numerous entrepreneurs the funding they will need to get their businesses launched or to expand and better serve their clientele.
So how can a company get going in such a difficult environment?
By factoring their accounts receivable invoices.
What is factoring?
Factoring is the purchasing of a company's accounts receivable invoices. It's generally used when a company is in its beginnings or experiences a growth spurt to impart that firm with cash money.
How does factoring work?
A factor buys a business's accounts receivable invoices and gives them a large percentage of the total creditworthy accounts receivable up front and the excess when they are collected. The factor handles all the credit checks, collects the accounts receivable and records the receivable so the client has the ability to concentrate on growing their service.
How does factoring vary from alternative varieties of financing?
Factoring differs from traditional bank financing because the credit decision is solely based on the strength of the customers of an enterprise and the invoiced receivables they are obligated to pay. How long an organization has been in business, a firm's working cash and credit history, items that a lender would take into account hold little impact on the decision of a factoring business to provide factoring solutions to a firm. Factoring varies from capital funding in that factoring companies do not take equity in the firm. Since factoring agreements are usually short term, the firm could possibly choose to halt factoring and have their receivables released in just 60 days.
Who can benefit the most from factoring?
Commonly, any business-to-business company that has the opportunity to boost their profits but are prevented due to an absence of working capital can certainly benefit from factoring. The business sectors that tend to make use of factors most often are service-based because they have a higher labor component (must pay employees weekly). Without factoring, they would not be able to expand. The transportation profession is substantial; truckers factor because they have to pay employees and gas expenses weekly and truck rentals monthly and with receivables collected every 45 days, it would be difficult to grow without factoring. Staffing is another market that profits.
What are some common false impressions about factoring?
The biggest misconception is that people assume factors are a lender of last recourse but that's not true. Business seeking out factoring are often in the beginning stages of growth. At first glance, factoring appears to be expensive but does a lot more; actually, factoring takes the place of a firm's accounts receivable and credit department. For example, if a transportation company earns $600,000 annually in sales, a factor may charge 5 percent (or $30,000) per year for financing.
In addition to the financing, the factor will do credit checking, record keeping and all the receivable work, thus saving the business the salary of a staff member employed to manage the identical tasks. Aside from that, since a trucking company is not in the business of funding various other companies it is customary to charge a percentage for giving net 30 or longer terms.
The majority of clients get in touch with a factor for the cash, not the service, but they remain with them once discovering what they can provide.

Keywords: Invoice Factoring Funding

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