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Factoring provides quick liquidity to your business for growth or on-going operations. As a source of funds, factoring is easier than going to a bank for a commercial loan. A bank has many financial requirements that most small businesses don't meet, and require a 60-day application and approval process.
With your cooperation, a factoring arrangement can be reached in a matter of hours and the amount you can factor is unlimited, based on the credit worthiness of your accounts receivable.
The advantages of factoring
Factoring is the process whereby a company sells its accounts receivable to a factor at a discount and receives cash. The factor also typically provides credit management and collection services.
For example, a company has $10,000 of sales invoices to factor. The factor advances to the company a certain percentage of the invoice upfront. For this example, let's use 90% so that at the time of purchase $9,000 is sent/advanced to the Company.
This upfront payment is not a loan, but an advance on the purchase of accounts receivable. The factor then collects the invoices and sends the balance of $1,000 less its fees when the invoices are paid. Fees are typically based on how long it takes to collect each invoice.
The Factoring Process
Invoice factoring, also called accounts receivable factoring, is a great way to help manage cash flow by providing an alternative to traditional bank financing.