What is factoring?
Factoring is a financial transaction whereby a company (Seller) sells its accounts receivable (Invoices) at a discount to a third party (Factor). This is done to facilitate the immediate payment of an invoice(s) and allow the business to accelerate cash flow to support growth. Factoring is a complete financial solution that combines working capital, credit risk protection, accounts receivable bookkeeping, and collection services.
How is factoring different than a loan?
Factoring differs from bank loans in several ways. The Factor is much more concerned with the creditworthiness of the Debtors, whereas a bank focuses on the creditworthiness and total assets of the Seller. Factoring is not a loan; it is the purchase of a financial asset (accounts receivables) from the Seller at a discount.
What types of businesses utilize factoring?
A typical business that sells or provides services to other businesses’ and extends credit will have ten to twenty percent of its annual sales tied up in accounts receivable at any given time. Just think for a moment about how much money is tied up in 60 days’ worth of receivables, and then think about what a business could do with that cash if it were on hand. You can’t pay the power bill or this week’s payroll with a customer’s invoice; but you can sell that invoice for the cash to meet those obligations. A company needs consistent and dependable cash flow. Any company, whether starting out, experiencing a growth phase, or is mature in years, needs good cash flow. Factoring can be one of the best ways to get it. These industries below benefit greatly from the use of factoring services:
|Oilfield Services||Cable & Telecom||Utilities||Food Suppliers|
|Fuel/Biofuel||Staffing Agencies||Landscapers||Janitorial Services|
What types of businesses don't qualify for factoring?
Businesses that cannot utilize factoring are those that provide retail services to the public or receive immediate payment by cash or credit card. As a general rule, retail establishments such as restaurants, stores and gas stations do not qualify for factoring.
How much does factoring cost and how is it calculated?
The cost to the Seller for Factoring their invoices is generally a percentage of the gross amount of the invoice that can be structured in a variety of ways. As calculated monthly, that percentage is generally between 1.5% to 6.0%, depending upon the volume and number of the invoices being factored, the creditworthiness of the Debtors and the amount of time that the invoices remain outstanding.
What are the benefits of factoring?
There are many benefits of factoring, some of which are:
- A Factor generally makes their credit decisions based on the strength of the Account Debtor’s, not the Seller’s financial strength or credit standing.
- Factoring offers flexibility and access to capital that traditional bank financing cannot. Unlike banks, Factors look at the quality of the collateral to fund.
- Factoring is a financial tool that increases cash flow and working capital and helps avoid problems from slow paying customers.
- Factoring allows you to take advantage of profitable opportunities requiring additional cash (i.e., larger orders from well-established customers.).
- Factoring quickly turns your unpaid invoices into immediate cash instead of having to wait 30 days to 60 days or more for payment.
- Factoring obtains working capital without dilution of ownership and control. No need to give up equity in your business to grow sales – no Shark Tank!
- Factoring provides operating cash on a controllable basis. You choose how much you factor and when.
- Factoring can help establish or improve a company’s credit standing by providing much needed working capital to your business.
Why should I use Quickpay Funding?
Quickpay Funding, LLC was founded to provide small and medium-sized businesses with the funds they need for success. Our driving mission is to offer best-in-class customer service and timely credit decisions. We can help you secure the capital needed to expand your business, make critical tax payments, meet payroll obligations, and shorten the turnaround of your accounts payable and take advantage of supplier discounts.