While your accounts receivable factor may not be in your neighborhood, city or even in your state, that doesn’t mean that you shouldn’t take the time to get to know the business.
This applies when you are shopping for a factoring service, but it also applies to continuing to use the service. Comparing prices and understanding the different services available when you are factoring your accounts receivables will help in making the best choices for your business even if this is the first time you have used the service.
There are different costs and processes involved in the factoring of accounts receivables by different factoring companies. Comparing different companies will provide a good understanding of where a specific factor fits into your business and within the factoring industry as a whole.
How it Works
The factoring of accounts receivables is a very old and very established method of maintaining cash flow. When your company does work or sells to another business, invoices are typically on 30, 60 or 90-day terms. This means a gap between doing the work or providing the product and when you are paid.
A factor will buy those invoices and provide up to 80% or more of the value in immediate funding. The factor then manages those invoices and collects from your customer. From the remaining 20% held the factoring fees are deducted and your business is refunded the residual amount.
The process of factoring is very simple. A business owner will complete an online application and provide the invoices they wish to factor. The factor then approves the application and provides information on the fees they will charge to provide the service.
The business owner then agrees to the factoring service terms or negotiates. Once accepted by both the business owner and the factor, the funds can be in the business account within days.
As this is not a loan, there is no repayment to the factor and no interest, making it a cost-effective option for any business to consider to address short-term cash flow concerns.