Factoring

When a company has outstanding invoices, it can leverage those with a factoring company to receive fast cash. A factoring agent will purchase the invoice and pay off up to 80 percent of it immediately. Then, the agent assumes the responsibility of collecting payment. Once the client pays the invoice, the agent sends the remaining balance to the company, minus a factoring fee.
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Factoring Pros and Cons

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Fast cash can help smooth out cash flow problems.
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It’s easy to qualify since the company’s credit score isn’t used.
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Once a factoring account is set up, financing is even faster.
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Factoring fees can eat into small invoices.
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This process may not work well with company/client relations in some cases.
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A contract must be established with each balance, so factoring doesn’t work for companies with a lot of small accounts receivable.

Loan Highlights

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Most factoring agents can issue payments within 24 hours.
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This process works for outstanding invoices, purchase orders, and long-term contracts.
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Companies usually receive up to 80 percent of the balance upfront.
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Factoring doesn’t require a long-term contract. A business can factor as few or as many invoices whenever it likes.
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Agents charge a fee per invoice, which can add up if each balance is relatively small.
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Companies don’t need a high credit score to factor since their clients are the ones being scrutinized.

Lean More About Factoring

Managing a company’s cash flow can be challenging, particularly when it offers extended payment terms for clients. Because some customers can take up to 60 or 90 days to satisfy an outstanding invoice, the company might have dry spells without a positive cash flow.

Factoring can help the business get around these slow periods by offering immediate financing. The company will work with a factoring agent to immediately receive the majority of the outstanding balance, usually up to 80 percent. What makes factoring such a viable solution is that most funding arrives within 24 hours.

The factoring options aren’t limited to outstanding invoices. Companies can leverage balances from purchase orders and long-term contracts as well. This way, the business can receive immediate funding when it might otherwise have to borrow funds from a bank or other institution.

While factoring is beneficial in most cases, it’s not always the best option. Since a business can only factor individual invoices, it’s not optimal for relatively small balances. Since the company pays a factoring fee on each one, financing multiple invoices can add up quickly

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