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Factoring receivables is one of the forms of financing that sometimes gets the Rodney Dangerfield treatment – you know, “don’t get no respect.”

Factoring accounts receivables, also known as invoice factoring, is an established way of providing working funds for a business. But in my experience it’s also little known, and even flat-out misunderstood.

What Factoring Is

In its simplest form, factoring is when you sell your invoices (or accounts receivables) to a financing company called a factor. The factor advances a large chunk of the invoice amount, say 80%, immediately. The factor takes responsibility for collecting the invoice. When it is collected, they pay you the rest, less a factoring fee. Factoring fees may range from 2% to 15% of the invoice amount.

There’s usually less paperwork than in a bank loan. Turn-around times are much faster, too. Factors sometimes pay the initial sum within 48 hours. Read entire article.

Posted in Money Management