For companies facing a cash flow issue, unable to secure those immediate funds, or simply unwilling to wait any longer on a customer to pay their invoices, there is a solution, and it comes in the form of selling these unpaid invoices, or receivables, to a factoring company. Cash flow is often one of the main concerns businesses have, and faced with a sudden lack of cash reserves, factoring companies can help alleviate this problem by purchasing receivables, and paying a portion of their value to the company. In return, the factoring company will then collect directly from the customer, and will derive a profit from what they pay the business, and what they collect on that outstanding invoice. In the worst recession since the great depression, factoring companies have become a viable alternative for businesses unable to secure that additional business loan or line of credit.
What is the going rate on payment with factoring?
As for the amount paid per outstanding invoice, it really depends upon the industry, the receivable’s value, and the likelihood the company will be able to collect from the customer. Payouts vary according to the amount owing, the industry, and the customer credit rating. As such, it simply goes without saying, that if an industry has a bad crediting rating as a whole, the payout itself may not be as high as another industry whose companies are more likely to pay their invoices. It amounts to managing risk, and much like the business is trying to reduce risk by selling its receivables, the factoring company must ensure they have a high probability of collecting on that balance owing.
Factoring companies are professional enterprises that manage customer relationships:
Factoring companies are excellent resources for those urgent times where a company needs funds to run its day to day operations, pay its own vendors, and meet payroll. They are professional, courteous, and respect the importance of customer relationships. In a recession with tightening credit, it seems every business is stretched to meet its creditor commitments. Factoring companies understand this, and know how to handle both the company selling the receivables, and the customers they will eventually collect from.
Factoring is quickly becoming the solution of choice for companies with cyclical and seasonal business patterns, low on incoming payments, and unable to get an extension of their credit. Every business encounters issues with cash flow. For some, they wait and wait for the situation to improve, while others take advantage of the situation, and deal with a factoring company to keep their business viable.