WHAT IS FACTORING?
Converting Invoices into CashFactoring is the purchase of an asset, your accounts receivable (invoices) from a business at a discount. In return, cash that is normally tied up for a 30, 60 or 90 day waiting period becomes immediately available to you. Having this additional cash allows you to take advantage of growth opportunities, reduce debt or pay daily or monthly operating expenses. Factoring is a fast, easy and flexible way to improve your cash flow and generate working capital for your company so you can achieve the success you are striving for.
Invoice financing has been in use since pre-Revolutionary days in the American colonies. As cotton, furs and timber were shipped from the colonies, European merchant bankers advanced funds to colonists for raw materials before they reached the continent. Colonists continued to harvest their new land, free from waiting to be paid by European customers.
Invoice financing has evolved far beyond its early roots in Colonial days and has emerged into a widespread financial alternative for businesses of all types. The volume of invoice funding in the United States exceeds $150 billion annually. Businesses use invoice financing to generate cash to pay bills, allow for growth and create greater profits.
There is No Such Thing As A Factoring LoanFactoring is not a loan. It is the purchase of an asset, your accounts receivable, at a discount by a financial institution called a factor. A traditional bank loan uses all of your company assets as collateral and typically requires personal guarantees. Invoice factoring or account receivables factoring relies on the credit-worthiness of your customers, not your balance sheet or history.
Unlike a traditional loan, factoring does not add debt to your balance sheet, and there are no loans to repay and there are no monthly payments of principal or interest. By selling your accounts receivable to a factor rather than borrowing from a bank, you simply convert one asset (accounts receivable) into another asset (cash). You can factor accounts receivable to improve your cash flow or help to accelerate your growth. There are no lengthy applications or loan committees. Factoring can be short-term or part of an ongoing financing program. New companies can benefit as well, since there is no requirement for a long-term credit history.
Factoring Financial Services
Factoring financial services through factoring companies provides an extremely powerful cash management tool to the business world. This is because the most important aspect of the transaction is not the credit-worthiness of you or your company; it's the credit worthiness of your customers. So, factoring is a fast, easy and reliable financial service that allows you to access cash based on the financial soundness of your customers.
Best of all, factoring financial services allow you to regain control of your company's financial situation by always having access to an immediate source of cash.