Invoice Factoring is a quick and flexible form of financing which substantially improves a company’s immediate cash flow. Its use traces to the financing of international trade, with its rules delineated in the Code of Hammurabi, dating to 1772 B.C.
If you can’t obtain bank credit, Factoring is often the next best alternative. It is the sale of commercial invoices to a buyer (“Factor”), at a discount from face value, in order to obtain immediate cash on invoices.
Factoring is best used when sudden growth strains a company’s cash flow, or it is left without access to the traditional asset based lending market. Factoring also relieves a company from the need to monitor and collect from its customers, and effectively outsources the credit and collection functions to the Factor.
The Factor assumes full responsibility for credit analysis and collection on the accounts receivable.
Your credit worthiness is taken out of the equation. The credit quality of your customer is what matters.
There are three parties involved when an invoice is factored:
the company (the seller of the product or service who originates the invoice),
the debtor ( the obligor of the invoice) who promises to pay the balance within the agreed payment terms
the Factor who purchases the invoices.
Factoring payments are commonly made in two separate transactions. the largest advance is made at purchase, commonly 85%. The second and small payment is received upon collection of the invoice, and is the remainder minus fees due the factor. In freight bill factoring, trucking companies can sometimes get a full advance.
Factoring provides you with an advance on your invoices, giving you money for payroll, to pay suppliers, taxes and take care of other business expenses. We will work to understand the unique characteristics of your business and customers payment patterns, identify ways to decrease dilutions, and maximize your cash inflows.