Can you answer overstockto’s question about Factoring?:

If depends; then what is the ups and downs if its our own risk and if its the factor’s risk?

Factoring Software

e most misunderstood financial tools available to small businesses today, in the United States alone, factoring dates back to colonial times. Historically factoring has been around for more than 4000 years, or since the beginning of trade and commerce. In the U.S. a popular method of financing, factoring is helping many businesses improve their cash flow. Simply put, factoring is when a company decides to discount its accounts receivables, at which time the factor bears the credit risk for the accounts. Itis the factor who is the recipient of payment from the client’s customer. Invoice factoring is among one of the most efficient forms of financing today — particularly now that we are faciong such tough economic times. Factoring has been traced back to a king in Mesopotamian named Hammurabi. Historical documentation about the use of factoring proves that it took place in our American colonies before the American Revolution. This was at a time when raw materials like furs, cotton, timber and tobacco were shipped to Europe. Merchant bankers in London and other parts of Europe advanced funds to the colonists for these raw materials. this way the colonists were able to continue to harvest their new land, free from the burden of waiting to be paid later by their European customers. This practice of receivables factoring was very helpful to the colonists, as they could go ahead and begin their harvesting without waiting for the money the Europeans owed them. In the past, factoring agreements were on an all or nothing basis where one either factored all of a company’s invoices or not. But in recent years, single invoice factoring, also known as spot factoring, has become popular. With single invoice factoring, you are allowed to factor as few or as many invoices as you desire. Perhaps you own a small business and things are going really well, but you wish you could get some additional working capital to move your business to the next level. Whether it’s a one-time need, or an ongoing necessity, working capital or the lack of it, is the most obvious reason between the success and failure of a small business today. Factoring just might be the ticket for you and your company? Ask yourself if your small business could use factoring to speed up cash flow. If you need to increase working capital so the business can grow, then chances are you could use factoring. While often confused with accounts receivable factoring, which is another way of saying invoice factoring, accounts receivable financing technically refers to a loan agreement between two parties. Factoring is a financial purchase or transaction and involves three parties. The biggest difference is that with a loan it’s your credit that matters, with a factoring agreement it’s your customers credit worthiness that matters. You may hear things like accounts receivable factoring with and without recourse. What does this really mean? The term “spot factoring” is the same thing as single invoice factoring and it is becoming more common in its usage. Single invoice factoring, or spot factoring, refers to the increasingly popular practice of picking your spots, or choosing which invoices you want to factor. This allows you to retain the most money while spending the minimum fees with the factoring company.

Thanks to Kristin Gabriel for contributing this article to our Factoring blog:

Invoice Discounting

The accounts receivable and the responsibility for the collection are sold rather than provided as loan collateral, and the client must notify all of its customers of the new arrangement. This can involve a very substantial payment being made right at the start, with most factors paying 70% to 90% through initial advance of the invoice amount followed by a small additional payment, through reserve release, once they collect the invoice.

Over the course of time, factors may offer the liable individual or entity a discount from 2% to 5% or more on the outstanding debt. Factors advance funds under one of two conditions: non-recourse, where the factor assumes all the liability for the invoice, this costs quite a bit extra but can be advantageous, with insurance typically covering 80% of a debt rather than the whole thing, or recourse, where the factor can come back to the business should the invoice become uncollectible and require reimbursement.

Even though some factors buy the invoices from a company, their contracts are very specific that if an invoice is not paid within a certain period of time, usually 30 to 90 days, the factor will reclaim any advances it has made against the invoice. Factoring is designed to be more beneficial to the seller of the account than to the debtor. The seller receives money, while the buyer makes a profit by buying the account for less than what it was valued at and then collecting on it.

Factoring allows a buyer to purchase these accounts for around 25% less than what they are actually worth. Setting up a factoring deal can be done more quickly than most other forms of finance. The staff at factoring companies are more commercial than at other lending institutions, and will work to find a solution for potential client companies. There are some possible disadvantages, the main ones being cost and the fact that clients have to deal with the factoring companies.

Factoring can also be a gamble for the factor, because there may be bad debts or other obstacles to collecting the funds. Therefore, factors have begun running credit checks and assessing the financial health of potential clients before entering into a factoring arrangement. Clients provide annual reports and other indicators of financial health to factors before they are approved. Factors often establish a credit line with clients and dictate the amount of credit that their clients can offer to customers.



Thanks to Joshua R. Conklin for contributing this article to our Factoring blog:

Structured Settlement Funding

Can you answer overstockto’s question about Factoring?:

The best rates. Most reliable; and will work with small numbers.
I’m In USA California
Sorry I mean Factoring invoice company.
We sell invoice to the factoring companies

Account Receivables Collection

e major challenges facing almost any small business owner today is how to maintain and control positive cash flow. And, one of the least understood options for increasing cash flow is factoring. This one tactic alone can help a business meet immediate operational expenses, including payroll, materials, equipment, or even taxes. It is also a great way to quickly fund growth for any small business. You can raise funds immediately through single invoice factoring, and then take advantage of such discounts when purchasing raw materials, equipment or supplies, so your business grows. This will help you reduce your manufacturing costs. Here’s how it works. A business sells its accounts receivable to a factoring company, which results in the business being able to improve its immediate cash flow. The full amount of the accounts receivable is then collected by the factor from the customer. Here are some of the benefits of factoring: - Collections: Outsourcing the function of accounts receivable management to another company often times will free up resources, so you and your employees can to focus on doing more business. - Provides working capital: Many companies have the majority of capital tied up in things like their inventories, or supplies. Funding that comes from accounts receivable factoring gives a company the chance to free up capital. - Invoice factoring provides quick financing: Accounts receivable factoring doesn’t require a business plan or tax statements. It’s a quick form of cash. The bottom line is that you won’t be giving up equity in your company when you obtain financing through accounts receivable factoring. How quickly can you receive funding from invoice factoring? Most factoring companies complete funding within 24 hours. Many people ask if they can be selective in the invoices that they sell. And, yes, you can be selective, because you don’t have to sell 100 percent of your accounts receivables. In fact, if you want, you can even sell just one invoice. Many factoring companies have no minimum sales volume requirements, so you can use the service only as you need it. It also works in reverse, as there are no maximum limits either. In case you are wondering how much you can advance against an invoice — most companies advance up to 90 percent against each invoice that you sell. The cost of doing factoring involves a professional fee — and they are typically competitive, however each client’s circumstances vary. In summary, invoice factoring is a highly effective cash management strategy. There are some industries that have been using factoring for many years. For example, the construction industry reports that sub-contractors who often experience cash flow problems use factoring. Factoring allows businesses to obtain funds based on their current accounts receivable.

Thanks to Kristin Gabriel for contributing this article to our Factoring blog:

Business Capital Financing