A Financing method in which a business owner sells accounts receivable (invoice) at a discount to a third party funding source to raise capital.
- The Client (YOU) make a sale, delivers the PRODUCT or SERVICES and generate an INVOICE (bill for goods / services you’ve provided them with).
- The FACTORS (The Funding Source or the third party funding source) buys the right to collect on that invoice by agreeing to pay you the invoices FACE VALUE (less a discount i.e., 2 – 6%).
- The FACTORS pays 75% to 80% of the FACE VALUE immediately and forwards the remainder when your customer pays.
FACTOR dont see its client(YOU) rather it focus on client’s Customers. That mean if Clients’ Customer is able to pay or not.
Question : How it helps me then?
Answer: A Company (assume YOU) with credit worthy customers may be able to factor even if it can’t qualify for a Loan.
MISCONCEPTION : Factoring is a LOAN.
NO, It is not.
When Bank don’t give you a Loan, You can chose FACTORING to raise Company Capital.
FACTORING is a short term Solution.