4. Who Should Use Factoring?
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Factoring can be a smart move for any business with a large amount of cash tied up in receivables, or those that extend credit to clients. Think about it- if you deliver services or products to a customer and bill them 30, 60, or even 90 days later, you’re effectively “lending” them the goods- and the money to pay for them! For this reason, factoring services great for businesses that are inventory-based that use delayed billing structures.
Who qualifies?
You will need to qualify for factoring similar to if you were going to qualify for a merchant cash advance. Usually this process entails sending your invoices to a factoring service for review- you should include the most up-to-date information possible, so that the factor can determine if the invoice is worth purchasing. Many industries bar factoring, or require specific types of transactions or restrictions on the type of information that can be given (think confidentiality issues, such as medical records or hospital billing invoices).
Financial limitations
Accounts receivable factoring companies prefer to work with businesses with $5,000 to $10,000 in accounts receivable for a given 30-day period. If you’re receivables balance is lower than this, you might be subject to higher rates or additional fees.
Creditworthy Customers
Factoring services care less about your credit history than they do about your customers’ financial references. The best way to get low rates is to factor invoices from financially responsible customers. You may need to provide information on payment history or credit references for customers whose invoices you seek to factor.Go to... 1, 2, 3, 4, 5, 6, 7, 8, next page
