Q: Why do B2B buisness companies factor
receivables?
A: Companies with recurring cash-flow problems often can't afford
to wait 30, 60 or even 90 days for invoice payment. They need cash to meet immediate financial demands of
their business. Companies that use factoring have the potential to double or even quadruple their
current sales volume. Factoring helps provides this cash by funding the purchase of accounts
receivable, often within 24 hours after invoices are created.
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Q: How does B2B factoring differ from
other types of funding?
A: Factoring companies make funding decisions based on the
credit-worthiness of your customers; your own company’s credit has very little influence in the
decision. On the other hand, conventional lenders make credit decisions based on your
company's financial history, cash flow and collateral. In addition no liability appears on your
balance sheet, because factoring is not a loan. This preserves your ability to borrow in the
future. Finally, factoring takes days or even hours while others can take weeks or
months.
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Q: Is factoring a new financing
option?
A: Factoring has been used for centuries. It's one of the oldest
forms of financing dated back to the Renaissance Italy. Until recently, factoring was primarily
used in the garment and textile industries. Today, businesses in many different industries such as
staffing, manufacturing, and other B2B industries that make sales on credit use factoring.
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Q: What companies benefit most from
factoring?
A: Factoring works well for startups as well as high-growth
companies. Factoring is also a viable option for companies that are facing cash flow difficulties,
that want to outsource their accounts receivable department, or that can improve their sales by
shortening their cash flow cycle.
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Q: What does factoring cost?
A: Rates are based on individual and specific circumstances.
Factoring rates depend on the credit-worthiness of your customers, your average invoice size, average
payment cycle, factoring volume and other elements. In general, the cost of factoring is outweighed by
its significant benefits: access to immediate cash, credit analysis, collection work and
accounts-receivable reporting.
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Q: Is factoring a type of loan?
A: No. Factoring is not a loan. Factoring is the purchase
of a business asset at a discounted price. Factoring is more related to selling and buying a car
than obtaining a loan.
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Q: What is the difference between
factoring invoices "without recourse" and factoring invoices "with recourse"?
A: Factoring invoices without recourse means that the factoring
company absorbs all the risk of the client not paying. Non-recourse factoring is usually best when
the majority of your receivables are with a small client base or when otherwise in risk of not being
paid. Recourse factoring usually carries lower rates than non-recourse factoring, but if your
client does pay you must buy back the receivable from the factoring company. Despite the risk,
recourse factoring is great if you have a larger client base and/or customers that pay their accounts on
time regularly.
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Q: When is factoring NOT a good fit for
a business?
A: Factoring is not the right option for every business.
Businesses that have profit margins lower than 10% generally should not factor their receivables.
Factoring also does not serve much benefit to a business that already has significant cash reserves on
hand. Companies that make consumer sales, or other sales that are not to other businesses, cannot
factor their receivables. Finally businesses with receivables that are aged pass 90 days usually
will not find a factoring companies willing to purchase and collect the accounts.
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Q: Do you do other types of accounts
receivable financing besides factoring?
A: Yes we do. Although factoring is primary specialty, we
can place financing proposals for other types of accounts receivable financing such as AR backed lines of
credit and individual invoice financing. If this is you, we suggest that you contact for more
information.
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