Is Factoring a good option for you?

Receivables factoring or debtor financing, is when a business buys a debt or invoice from another company. Factoring is seen as a form of?discounting invoices?in many markets and is very similar but just within a different context. In this purchase, accounts receivable are discounted in order to allow the buyer to make a profit upon the settlement of the debt. Essentially factoring transfers the ownership of accounts to another party that then collects the debt.

Factoring therefore relieves the first party of a debt for less than the total amount providing them with working capital to continue trading, while the buyer, or factor, chases up the debt for the full amount and profits when it is paid. The factor is required to pay additional fees, typically a small percentage, once the debt has been settled. The factor may also offer a discount to the indebted party.

Factoring is often cheaper on companies than short term/bridge loans. It helps companies increase their liquidity. If you business is B2B then you likely have clients who pay as late as 60, 90, 120, 180 days out of invoice which can hurt your ability to conduct business and make money they way you want. As we enter into a season of stagflation it may be beneficial to see if factoring is a good fit for your company. If you are already factoring, now may be a great time to see if you can find a factoring company who can offer you a better deal.

Let's Talk,

Scottt

Special thanks to Trade Finance for all the research and insights.