Best Practice: Customer experience is critical to branding. Make sure accessing money quicker with factoring helps deliver on the brand promise.
Today’s Article: Access to Capital for Branding – Factoring
Factoring is when a business sells its accounts receivable, or invoices, to a third-party commercial financial company, also known as a “factor.”
The business does this to get cash more quickly than it would by waiting 30 to 60 days for a customer payment. Factoring can also be called “accounts receivable financing.” After the business receives its money, the factor starts collecting it from the business customers.
There are basically two types of factoring – Recourse and non-recourse.
Recourse factoring, charge a lower rate since they are not responsible for any bad credit. If the customers do not pay, the business will need to refund the amount factored.
Non-recourse factoring, charge a higher rate since they are responsible for any bad credit. If the customers do not pay, the business will not need to refund the amount factored.
Advantages of Factoring
1. Access to money quicker and improves cash flow for financial growth
2. Can be a cost-effective collection of accounts receivable. When a business sells its accounts invoices, it saves time and does not require the overhead of employees to collect the money
3. If non-recourse factoring is selected, one has protection from bad debts
Disadvantages of Factoring
1. Factoring can be very costly, depending on the discount amount
2. If recourse factoring is selected, one does not have protection from bad debts
3. With factoring, a third-party will be directly collecting invoices from company customers
4. If your customers are not treated right during the accounts receivable collection process, it can have a negative impact on your business and brand
International Factoring Association
Click Here to find a factor for your company.
Action Step: If you have receivables and need immediate cash, factoring may be an option. Research factoring companies in your area or industry and see if makes sense for you.
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