What is Accounts Receivable Factoring?
Accounts Receivable Factoring is a great way for a company to improve their working capital by speeding up their cash flow. In a factoring relationship a company will sell their accounts receivable to a factor. The “factor” will advance payment against the receivables and collect directly from the end customer. In a non-recourse factoring facility, the factor assumes the risk of non-payment by the customer in certain circumstances.
How does the accounts receivable factoring process work?
Accounts receivable factoring involves the sale of accounts receivable to a factor. The accounts receivable factoring client sells goods or services to their customer and issues an invoice. The factor purchases that invoice at a discount and advances payment up to a certain percentage of the overall value (typically between 70-90%). The factor then collects payment directly from the end customer.
Does personal credit matter with accounts receivable factoring?
No. Credit decisions are made based off of the credit of the end customer (buyer) and their ability to pay the invoices in a timely manner.
When factoring my receivables, how do I submit an invoice to borrow against?
After delivering a product or service to your customer you simply invoice your customer and submit a copy of the invoice to the factor with the necessary paperwork (schedule of assignments). This can be done electronically or with paper invoices depending on how you are set up with your clients.
How much does accounts receivable factoring cost?
AR factoring costs vary depending on the quality of credits or customers you are dealing with and the size of the factoring facility. The projected volume of the deal can also affect the rate.
What is your advance rate for factoring?
80% is a standard advance rate for a new factoring client. The advance rate can go up or down depending on the financial condition of the client, strength of the end credits, and selling terms.