The financial arrangement between the factor and client, in which the client gets advance in return for the receivables from a financial institution is termed as factoring.
Account Receivable Financing
Factoring can be also known as account receivable financing. It is a financing technique, in which an outright selling of trade debts by a firm to third party (factor) at discount prices. It is a relationship between the factor and client, in which factor purchases the account receivables of clients and pay up to 80% of the sum immediately.
The factor has recourse to the client firm in the event of the book debts purchase become irrecoverable. No credit risks associated with receivables is assumed by the factor. The factor charges the client for services rendered to the client.
Non- Recourse Factoring
There is no right to have recourse to the client. The factor bears the loss arise out of irrecoverable receivables. The factor is actively involved in the process to grant credit and extension of line of credit to the customers of the client.
The name of the proposed factor is mentioned on the invoice that is made by the sellers of goods. The payment has to be one by the buyer directly the factor mentioned in invoice.
The name of proposed factor is not mention in the invoice made by seller. The control of all money remains with the factor where as the entire realization of the sales transaction is done in the name of seller.
This factoring arises from transaction related to domestic sales. When the three parties to factoring i.e. customer, client an factor reside in the same country is known as domestic factoring.
This is also known as cross border factoring. The claims of an exporter are assigned to a bank or any financial institution, financial assistance is obtained on the strength of export documents and guaranteed payments.
Who Can Use Factoring Service?
The factoring service can be used by the companies of all sizes, single person business to hundreds of corporations use factoring service to build the cash flow of their company.
How Does Factoring Company Buy Invoice?
Choose best factoring company for your business.
Set up an account with the factoring company.
Submit the invoice for purchasing.
You will get the advance from the factoring company.
After 30 to 60 days your client pays.
You get the rebate from the factoring company.
How Does Factoring Work?
Factoring helps the company with slow paying invoices to improve their cash flow. A factoring company purchases the invoice of the client which lead to immediate access to the funds which can be used to pay business expenses. Qualifying for invoice factoring is quite easy and it can be done quickly. It is very common method used by the exporters as it help to accelerate the cash flow.
Process Of Factoring
• The borrowing company or the client sells the book debts to the factor.
• Factor acquires the receivables and extends the money against it, after deducting and retaining the following sum.
• The client forwards the collection from the customer to the factor, in this way advance is settled.
• The factor gets the control over the client’s debtor, to whom the goods are sold.
Benefits Of Factoring
Eliminating Bad Debt:
The non recourse factor assumes the risk of bad debt. It will help to eliminate this expense from your income statement.
Factoring is the only source of financing which grows with sales. As the sales increases it lead to more availability of cash which allows you to meet demand constantly.
No Debt Incurred:
Factoring is not a loan so there is no debt. This keeps your balance sheet good which make easier to obtain other type of financing or to sell your company.
The factor provides you the credit information of the new customers which allows you to make better credit decisions.
What Our Clients Say?
Here are few reviews and comments from our clients.
The Financing Compass worked extensively with me to help me anticipate some of the issues that my business may face. Not many lenders would go to that length. They’ve been extremely supportive and a great resource.
Financing Compass enabled me to take advantage of an incredible opportunity to relocate and expand my business, at a pivotal time. The support I received from Financing Compass staff was priceless.
Working with Financing Compass helped me develop my business plan, ideas, and brand before getting started so that I was prepared to open a successful business when I received my loan.
Are You Looking For Our Services?
If you want any help related factoring to start your business you can contact us. We will provide you with the best service that will benefit your business.