The advantages of factoring companies
There are many factoring companies offering financial services to clients worldwide. Types of factoring are: Invoice factoring, International factoring, Purchase order financing, International trade financing, Construction factoring, Government factoring, Business loans factoring, etc. You have to discover what types of factoring you need.
What is factoring, by the way? Factoring is a financial transaction that a business sells its accounts receivable (i.e, invoices) to a third party (called a factor) at a discount in exchange for immediate cash to fund continued business. However, you loses some value of the invoice. The factoring company gets the debt and information collected. They make a profit by paying less than the actual value of the invoice.
The example of factoring is like this; You are owed $15,000 from a supplier, but you are having struggle getting the company who owes you to pay. You sell your invoice to a factoring company for $10,000, under a ‘non-recourse factoring agreement’. The factoring company then tries to recover the money. Problem solved and you have the funding to continue your business.
Another example; You are owed $5,000 by a company who you expect to pay in two of months. You sell your invoice to a factoring company who gives you $4,700 immediately. The factoring company then collects and keeps the full $5,000 two months later. Did you see the advantages and the reason why we need factoring companies?
Now, we know what factoring is, let’s discuss some types of factoring.
1, Invoice factoring - When facing problem of cash because you’ll wait 30-60 days before your customers pay the goods/services, or you have supplier and payroll commitments, invoice factoring can provide you with the funds you need. It provides anticipated cash flow that can help you manage your business to grow.
2, Purchase Order Financing, or PO financing, is used to pay your suppliers, laborers, or other inter agent for goods or services to generate more sales.
3, International Trade Financing is funding international business transactions using either foreign buyers or foreign suppliers.
4, An example of International factoring, a Philippine manufacturer of high quality furniture sells container loads to credit valuable U.S. buyers. When the factoring company received invoices and bills of lading that the goods have been sent or shipped to U.S. buyers, the factoring company then wired funds for the Philippine furniture manufacturer.
5, Business Factoring Loans example; a clothing manufacturer saw a potencial growth ahead. An easy factoring loan provided money to grow, but not enough. Factoring companies made a one year loan of $100,000 for equipment and machinery. With this additional capital, he could help grow his business and get in more credits.
There are several factoring companies offering different financing for your business. Some factoring companies offer a full line of factoring services such as inventory finance, equipment leasing, purchase order financing, accounts receivable management and other financial services. Search the Internet or ask a reliable source in this regard.
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