Factoring enjoys a long history in the world of business financing and is the cash-management tool of choice for many companies, especially those whose invoices are not paid for anywhere between 30, 60, 90 or even 120 days.
How Does Factoring Work?
In a typical factoring agreement with a factoring company (the factor) you make sales, deliver products and generate invoices. The factor earns a fee by purchasing the right to collect on your invoices. In exchange, the factor provides you with a sum representing the face value of the invoices less a discount (their fee) which typically ranges between 2-6 percent. You receive 75-80 percent of the invoices’ face value up front (without waiting for your invoices to be paid) and the remaining percentage (minus the discount) when your customers pay the factor.
Why it’s Easier to Get Funding Through Factoring
Factors are extending credit to your customers not directly to you. Therefore, they are more interested in your customers’ creditworthiness than your business’s financial status. So, if you are a business with creditworthy customers, you may be eligible for factoring even if your bank won’t give you a loan.
How Factoring is Different from a Loan
What factoring is not is a loan. Factoring does not create a liability on your balance sheet or encumber your assets. In fact, you are selling an asset, namely your invoices. While factoring may seem to be expensive when compared to the interest rate on a bank loan, if you can’t qualify for a bank loan anyway the interest rate is beside the point. However, factoring saves you money in ways that bank loans don’t. A significant amount of collection and accounting work is handled by the factor and not you.
Take Advantage of Factoring
Factoring can provide you with the funds you need to solve your cash flow problems and grow your business. Durham Commercial Capital specializes in factoring for a wide variety of industries. So, why not give us a call and we’ll explain how we can help your business to succeed.