Factoring Buyer's Guide
Table of Contents
1. What is Factoring?
2. Terms and Vocabulary
3. Types of Factoring and Billing Options
4. Who Should Use Factoring?
5. Pros and Cons of Factoring Services
6. Factoring Costs
7. How to Choose a Factoring Company
8. Forming a Factoring Contract
1. What is Factoring? An introduction
All businesses rely on incoming customer payments for operations. But what about the “in between” time- when customers have placed orders, products have been shipped and delivered, but no payment has been received? Billing customers in batches or monthly cycles can really make a dent in your operating cash- what can you do if all of your capital is tied up in receivables?
One option is receivable factoring, the process of selling receivable accounts for up-front cash. You hand over your invoices, the factoring service gives you a check. When the customer pays the bill in full (to the factoring company) you get the remainder of the invoice balance, less any fees or costs associated with the transaction. If done correctly, it’s a win-win situation- you get cash now, and the factor service makes money off the “fees” it collects for providing the advance. If done wrong, though, factoring can be costly and even place your business at risk.
How do you know if accounts receivable factoring is right for your business? How do factoring services work? Are they similar to merchant cash advance? Can you really make money using factoring? This guide outlines the basics of factoring transactions: who should use them, how they work, how to form a fair factoring contract, and what you should look for in a provider.
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