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What is Factoring?

Posted by in General Information

Many businesses have no idea what Factoring is. Or in some cases that it exists, while another percentage of businesses have a misperception of what it is so they ignore it as a viable or much better way to fund their business. Like all Loan Products, it is not the answer for all situations, yet is a great tool in others. There is an almost endless list of situations where Factoring is not only appropriate, but much more effective than any traditional loan product available. Today we’d like to distinguish two of these scenarios. First, Factoring will, typically, give you the most money possible when using your accounts receivable (AR) as the main collateral. When using AR as collateral most banks or prudent lenders will advance 40% to 60% maximum of the face value of the AR, whereby most Factors will advance 75% to 90% of the face value. In many cases that a lender advances, say 50% value, it is just enough to get a business into further trouble, particularly if the business is growing or struggling. Second, unlike borrowing money by utilizing a traditional line of credit, factoring your accounts receivable is a debt free way of funding your business. Factoring is the selling of an asset (without losing control) which converts a frozen asset, accounts receivable, into a liquid asset, meaning cash.

Stayed tuned for the next addition of “WHAT IS FACTORING”.

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