Factoring – What Is It?

Simply put, factoring is a financial transaction between a company requiring accelerated payment on invoiced goods or services – and a financial lender (Factor) that buys the accounts receivable at a discount. By selling accounts receivable invoices to an alternate financing lender, or a ‘Factor,’ the company receives immediate access to a cash advance based on the value of the transferred invoices. The Factor then collects payment on the invoices directly from the company’s customers.

How Does Factoring Benefit My Business?

It provides the ability to turn accounts receivable (A/R) into cash without having to wait 30 to 90 days for payment, enabling a business to operate in a more stable and predictable manner. Utilizing factoring, a business has the available capital to purchase materials as needed based on client demand and also the ability to pay infrastructure costs in a timely manner.

Why Should I Use a Factoring Company If My Customers Are Paying?

The main advantage that factoring provides for a business is easy access to a predictable stream of cash that matches sales output no matter how long customers take to pay. Without factoring, a company may have an impressive month of sales and still have no cash on hand at the end of the month to meet the cost of their operating expenses.

Why Wouldn’t My Company Get a Traditional Bank Loan?

Companies have often found themselves restricted by a limited line of credit or bank loan. Flexible financing facilitates smoother cash flow. If the company’s bank is not using all of the A/R as collateral, a factoring lender can work in conjunction with the bank to meet any extra financing requirements.

What Percentage of My Accounts Receivable Should I Factor?

The amount of A/R a company needs to factor varies based on many elements. Provida Financial will provide professional guidance based on the specific needs and goals of your company. There is a requirement that the invoiced clients show a satisfactory credit history based on a review of your company’s payment records. All findings will be shared for further discussion.

How Is a Cash Advance Calculated?

Cash advance rates are based on a variety of elements, such as; type of industry, client credit scores, business volume and programs selected. An advance can range from 70% to 85%. After payments are collected from your clients, the remainder amounts owing to your company on the accounts receivable being factored will be paid to you less fees.

How Does Non-Recourse and Recourse Factoring Differ?

The difference between non-recourse and recourse factoring is based on who assumes responsibility to cover the cost of unrecoverable outstanding A/R debt. With recourse factoring, the company selling the A/R to the factoring company is responsible for the payment to the Factor for any noncollectable invoices. With non-recourse factoring, the Factor assumes the risk of the non-collectible A/R purchased.

How Will Factoring Impact My Clients?

In today’s business climate, using alternate financing such as factoring is an accepted method of maintaining stability within a company and optimizing cash flow. Provida Financial strives for a positive experience for you and your clients. In many instances, we will provide your clients with an introductory letter outlining our collaboration in the growth of your company. We understand your client base is your company’s most valuable asset and we take the responsibility of maintaining a good relationship with your clients very seriously.

How much is Factoring Going to Cost Me?

Factoring can be an affordable financing solution. Our team of corporate finance professionals will guide your business to an optimal solution for your unique set of circumstances. We put your business in a position to grow and be successful by removing the challenges associated with cash flow. The fees and contract details will be thoroughly discussed and presented in writing before any contract or terms are agreed to. Fees are based on many elements including the level of service requested.

How do I qualify?

At Provida Financial, we work with small to medium-sized,  companies that have been operating for at least two years. If your business meets those basic qualification standards, our team of expert underwriters can work with you to quickly determine if you qualify for financing.