A Factoring Company is a company involved in buying invoices of other companies. A factoring company is all about offering invoice or accounts receivables factoring services to other companies.
Factoring companies prove to be a popular financing option for companies who have issues with their cash flows due to slow-paying customers. These companies often suffer seasonal lows, highs growth curve.
One important thing that you need to understand about factoring companies is that businesses do not borrow money from their factors. On the contrast, they simply are getting the money owed to them before time; the money is already mentioned in the receipts.
Why Factoring Companies?
Now, why would any company want to work with a factoring company? Well, factoring companies provide businesses with quick cash, more often than not, within 24 hours. Since this process is so fast and straightforward, B2B companies usually prefer to go ahead with this so that can bring their unsteady cash flow under control.
Besides, factoring companies clear and approve businesses faster than a bank does, since there are no long-term contracts, the fee is quite low too.
What industries do factoring companies work with?
Any industry where the payments for the goods and services are made in net 30- to net 60-day terms. Some of the industries and businesses that need factoring are –
- Trucking
- Medical offices
- Private investigators
- IT consultants
- Hospitals
- Medical offices
- Freight brokers
- Business services
- Owner-operators
- Wholesale
- Manufacturing
- Courier Services
- Technology
- Janitorial
- Consulting
- Call centre operators
- Cell tower construction and maintenance
- Diagnostic centres
- Oilfield services
- Landscapes
- Import
- Office supply
- Distributors
- Logistics
- advertising
- Security services
How does invoice factoring work?
Invoice factoring sounds like an impressive solution to your account receivables, but how do they work? Let’s see.
All your transactions are structures and purchased in two different installations. Out of those two installations, the first one is deposited in your bank as soon as you sell your invoices. This initial advance can vary from industry to industry, but the range roughly remains somewhere around 70% to 90% of the total invoice amount.
The next instalment is submitted to your bank account as soon as your client makes the payment. Also, please note that just because you have brought an invoice factoring company into the scene does not mean that your clients need to make the payment sooner. They can pay on their regular paying schedule. The second instalment involves the rest of the 10% to 30% amount of the advance that was not paid.
Advantages of working with a factoring company
There are some advantages in working with factoring companies because people are doing this. One of the direct benefits is that your cash flow improves within 24 hours. Your money is not tied up with accounts receivables anymore.
There are a few more advantages, let’s have a look at them –
- Work with turnaround situations
- Work with new businesses
- Increase financing lines quickly
- Help handle collections
- Help you with business credit decisions
