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Factoring Buyer's Guide - Introduction
Published: 04/02/2011
Introduction
If your company’s outstanding invoices total an entire month’s revenues or more, it can be difficult for your business to function while you wait for the money to come in. By factoring your accounts receivable, you get the funds quickly, allowing you to concentrate on growing your business while a third party collects the owed money.
Factoring transfers ownership of your accounts receivable to a factoring company, sometimes referred to as simply "the factor." The factor advances you most of the money owed on the invoices you provide to them. They then pay the remainder – minus a factoring fee – after your clients pays their invoices. You can use the funds to make payroll, invest in materials for an ongoing project, or satisfy high‐interest debts.
Factoring can be helpful for many companies, regardless of business size or success. You can often factor more than you could borrow, provided you have valid invoices from reliable customers. By working with the right factoring company, you can relieve yourself of the hassles of collecting payment.
Use this BuyerZone Factoring Buyer’s Guide to learn:
• How factoring works
• The various pros and cons
• How to shop for the right provider
• What you can expect to pay for services
Table of contents
Pricing guidelines
Actual costs for factoring services – between 1% and 5% of outstanding accounts receivable – will vary tremendously depending on the discount rate the factor requires as well as five other criteria:
1. Volume
2. Customer base
3. Industry risk
4. Client credit history
5. Type of billing
