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How Factoring Works
How Factoring Works
Because factoring, as a form of commercial finance, is structured as a purchase and sale method of finance rather than a typical loan, factoring offers some tremendous advantages and options for small business owners. For example, factors do not require personal guarantees from their clients and additionally do not require a lengthy business credit history when establishing a financing facility. This makes factoring perfect for young companies and even startups.
With factoring, you can receive advances against your invoices to use to make payroll, pay suppliers, purchase inventory, and expand your business. Factoring can also allow you to offer the credit limits that many larger customers demand, without having to worry about interruptions to your company’s cash flow. Additionally, factoring can allow you to take advantage of trade discounts, as well as meet trade obligations and other expenses.
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Easily Accessed by All B2B Companies
Because factoring, as a form of commercial finance, is structured as a purchase and sale method of finance rather than a typical loan, factoring offers some tremendous advantages and options for small business owners. For example, factors do not require personal guarantees from their clients and additionally do not require a lengthy business credit history when establishing a financing facility. This makes factoring perfect for young companies and even startups.
How Factoring Works
- SUBMIT YOUR INVOICES: Every week (or even daily), you will submit the invoices you wish to finance to your factor. You are not required to factor every invoice but only those you wish to receive an advance upon.
- ADVANCE CREATED: Your factor will review your submission and create an "advance schedule" with a calculated total advance amount to be purchased. If approved, you advance funds are transferred directly into your business checking account. Advance rates are typically 80% to as high as 95% of your invoice face amount depending on the creditworthiness of your customers.
- INVOICE MANAGEMENT: Your factor will manage all collections and receive payments upon your invoices directly into it's lock box. Monthly statements of account will be mailed directly to your customers by the factor showing outstanding invoice balances.
- COLLECTIONS: Payments are made by approved accounts directly into the factors lockbox. If required, courteous collection calls are made to those with late outstanding balances. Collection reports showing funds received from your customers are available daily
- BALANCE REBATES: As payments are received and posted, reserve balances (the amount received from your customer minus the initial invoice advance) are available as "rebates" and are transferred directly into your business checking account. A modest fee for the factor's services is charged at the time of the rebate.
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