Factoring services can rank among the most important elements in a company’s toolbox. They allow for improved cash flow. They offer peace of mind. They make extra funds available without additional debt. Still, they remain a mystery to many businesses. What exactly are factoring services, and what can they offer companies like yours? Read on for an overview from Central Bank and our affiliate factoring company, Advantage Business Capital.
Factoring Services: Understanding the Ins and Outs
Factoring refers to selling your accounts receivable at a discounted rate to a third party known as a factoring company. Some companies opt to sell all of their invoices, while others sell only a select few. Regardless, the overall process is the same. The factoring company advances you a majority of the payment for invoices it can verify, typically within 24 hours. The remaining amount, minus the agreed-upon discount, makes its way to you once your client has paid in full.
What Are the Costs Associated with Factoring?
In most instances, the only payments companies like yours incur are the discount fees for each factored invoice. Your specific fee will vary based on considerations such as the volume of factoring work, amount of time you anticipate it will take your clients to pay, and the creditworthiness of your clients.
How Can Factoring Services Help a Business?
Factoring is all about improved cash flow. By receiving quick payment on accounts that typically take a while to come in, you free up your finances so they can be used in other ways — taking care of tax payments, employee payroll, surprise expenses and more. It’s often an attractive option for businesses whose existing lines of credit don’t cover everything needed to sustain and grow operations. Additionally, factoring services can help you place your business on firmer financial footing. Because you are increasing your cash flow without taking on additional debt, it can elevate your credit status. And that makes your business more attractive to creditors.
Factoring services aren’t for every business, but they can be a helpful solution for those looking to gain access to needed funds more quickly. If your business serves creditworthy commercial customers and operates under 30- to 60-day payment terms, this option might be a great fit. If you’re interested in learning more, take a moment to visit our Factoring page, and drop by the Advantage Business Capital website, as well. Of course, you’re always welcome to reach out to the Central Bank team. We take pride in serving our Houston friends and neighbors, and we’re always here to help.