Factoring
If a company has outstanding accounts receivable, it can leverage those invoices for fast financing. The business works with a factoring agent to receive up to 80 percent of the balance upfront. Then, the factor will secure the remaining balance from the client. Once the client has satisfied the invoice, any remaining funds go back to the business, minus a factoring fee.
Overview
For companies with a lot of outstanding invoices, it can be challenging to maintain positive cash flow. In some instances, clients may have up to 60 or 90 days to pay off their balance, which can create financing problems if clients regularly take full advantage of the term.
In these cases, a viable financing solution could be factoring. With factoring, a company essentially sells its accounts receivable to a factoring agent. The agent purchases the invoices for up to 80 percent of their value. Clients then pay the invoice directly to the factoring agent. Any excess goes back into the business, minus any factoring fees.
There are many different benefits to factoring, including:
- Speed – Most factors can offer funding within 24 hours.
- No Credit Check – Since the client is the one paying the loan, the invoice holder’s credit score doesn’t matter.
- Flexibility – A company can secure funds at any point during the term and it can factor as many or as few invoices as necessary.
- Purchase Orders and Contract Financing – If a business receives a purchase order or contract from a client, it can borrow against that for fast cash too. As with invoice factoring, the company can tap into these funds at any point during the contract’s lifecycle.
Loan Highlights
- Factors will pay up to 80 percent of the outstanding balance.
- Funds are often paid within 24 to 48 hours.
- Companies can factor one or multiple invoices at a time.
- Factoring works with purchase orders and contracts.
- Each invoice or contract incurs a separate fee.
Pros
- Fast financing to manage the business’s cash flow.
- No credit check required.
- Limited liability factoring is also available to minimize risk.
- No long-term contracts necessary between the company and the factoring agent.
- Flexible financing options.
Cons
- Factoring can impact a business’s relationship with its clients.
- Factoring fees can add up, particularly with smaller invoices.
- If the client doesn’t pay, the borrowing company may have to return the funds depending on contract terms.
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Contact Info
Address: 5340 S Verde, Mesa AZ 85212
Phone: 623-230-7528
Email: Contact@revitalcap.com