Factoring is a business process in which a business gets paid on its accounts receivable, or invoices, by a third party financial company known as a “factor.” This is done so that the business can receive cash more immediately. The factor will extend the payment terms to the customer.
The terms and nature of factoring can differ among various industries.
Most factoring companies will purchase your invoices and advance you money within 24 hours. The advance rate can range from 80% to as much as 95% depending on the industry, customers’ credit histories and other criteria. Once the factor collects from your customers, the factor pays you the reserve balances of the invoices, which is the different between the advanced amount and the full invoice value minus a fee for assuming the collection risk.
Factoring is a great tool to manage your cash flow in order to be able to operate your business. In many cases it is worth to pay a fee to a third party company than wait to collect the money in 30 or 60 days.
There are 2 types of factoring, recourse and non recourse. The fee is high for non recourse since you will not be responsible if the customer does not pay the invoice.
Collections masters specializes in factoring and has many programs to fit your needs.