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factoring

what is factoring?

Factoring A.K.A. accounts receivable financing is a common practice for businesses looking to expedite their cashflow. Companies that have long-term invoicing typically benefit the most from this service; factoring allows a company to give its customers time to pay off the invoice, while also facilitating cash flow. Instead of waiting the two-to-three months to be paid, the company can essentially sell the rights to its invoices to a third-party financier knowns as a “factor” in exchange for immediate funds.

what does it mean to "factor" an invoice?

When you factor an invoice, you are making a deal with the financer for them to provide a cash advance for a percentage of the invoiced amount. Typically, 80% of the invoice will be available to you within just one day of factoring and the remaining 20% will be forwarded to you once your customer completes payment to the financial factor. Just like with any business transaction though, factoring has to benefit both parties. In exchange for the advance, the factor will subtract fees/interest from the final balance they deliver. 

THINK YOU NEED TO USE A FACTORING SERVICE?

 CALL US FIRST. 

1-855-674-7787

Many small businesses think they need to use a factoring service - but there might be a different way to expedite your cash flow. 

what if a customer doesn't pay?

Although a factor company will evaluate your customer’s creditworthiness before agreeing to take on their invoice, there is still the chance that customer will default. What happens next depends on the type of account you’ve set up with the factor.

non-Recourse account

A non-recourse account puts the risk and burden of collections on the factor. If a customer goes delinquent, your company will not be expected to repay the advance and is free to spend the cash as it sees fit. The factor company will either be out the money or choose to pursue the matter further with the customer directly.

recourse account

A recourse account holds your company responsible for the customer’s repayment. In these types of accounts, businesses should be selective about the invoices they choose to factor, picking only customers with solid repayment histories and credit. Should a customer default, you will either have to repurchase the invoice from the factor and deal with the customer yourself or you can offer the factor another of your invoices in exchange for the delinquent account.

why do companies factor?

The obvious reason companies choose to factor is in an effort to increase their available funds, but the same result could be achieved with a loan or line of credit. What sets this form of financing apart are the added benefits found below:

  • Factoring removes the collections burden from your accounting department.

  • The amount of cash you can be advanced is limited only by the amount of your invoices.

  • Factors are based on your own income and are therefore not considered debt.

  • Factoring is based on the creditworthiness of your customers. This means not only is the application process easier on you, but you will also have access to evaluations of your customers during the factor’s credit screening process.

interested in factoring?

Try using CONEXT® instead. If you find your customers paying with checks, Mobile Load can give you real-time access to those funds. There is no debt incurred, no interest payments, or any membership fees. Just one flat 3% fee, and the funds are yours. 

 

Want more info? Call us at 1-855-674-7787 to learn how CONEXT® is the right business solution for you. 

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*Checks loaded are subject to approval when submitted via CONEXT® Mobile Load. Restrictions and rules apply. See Terms and Conditions for details. CONEXT® Mobile Load not currently available in New York.

 

The CONEXT® Mobile Load is available only to CONEXT® Customers. The CONEXT® program is managed and serviced by Mercury Service Group, LLC (“Mercury”); and the CONEXT® Mobile Load app is serviced by Wausau Financial Systems, Inc. Sunrise Banks N.A., St Paul, MN 55103 is not affiliated with this service. See Terms and Conditions for details about restrictions and details.

 

The CONEXT® Visa® Prepaid Card is issued by Sunrise Banks N.A., St. Paul, MN 55103, Member FDIC, pursuant to a license from Visa U.S.A. Inc. This card can be used everywhere Visa debit cards are accepted. Use of this card constitutes acceptance of the terms and conditions stated in the Cardholder Agreement. For domestic use only. This card is distributed and serviced by Mercury Service Group, LLC. For New York Residents: Mercury Service Group, LLC is licensed as a Money Transmitter by the New York State Department of Financial Services. 

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