A factoring company is a commercial finance company that provides factoring services to companies in need of immediate cash. Factoring services means buying invoices for cash. Factoring services fees may vary from one factoring company to another factoring company and from client to client. They are determined by a combination of your customer base creditworthiness, average payment cycle, invoice size and factoring volume.
A factoring company through its factoring services provides over 100 billion dollars to industry each year. In fact, it is an old financial service used by multi-billion dollar corporations that is now available to smaller sized businesses to which banks are reluctant to lend funds. Factoring companies through factoring services are filling the tremendous void that banks have created.
Basically, a company sells its accounts receivable (invoices), representing money due from its customers to a factoring company for factoring services, at a discount from face value so that it does not have to wait the normal 30-45 days for its accounts receivable to be paid. In short, a factoring company helps a company speed up its cash flow, thereby enabling it to more readily pay its current obligations and grow.
Many new and growing companies have trouble obtaining traditional bank financing due to their length of time in business, profitability or financial strength. Factoring companies accounts receivable allows these companies to convert their accounts receivable into instant cash. Once you have delivered your product or service and generated an approved invoice, you can get your money in as little as 24 hrs. Factoring companies accounts receivable can help a company stay current with its vendors and other financial obligations such as payroll and taxes.
Other types of financing generally require two years in business and showing a profit. With factoring companies accounts receivable you do not have this limitation. Young, growing companies or those with tax liens and even bankruptcy can still qualify for accounts receivable purchasing lines.
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