Factoring refers to the act of factoring corporations to buy open invoices to individuals. The sellers receive a payment within 24 hrs. of selling those invoices and then collect these invoices from them.
The business needs of a company determine the way the corporation factors. For instance, factoring in British Columbia happens in a way that allows these companies to sell all their invoices, while other companies only do this for clients who take more time to pay.
This guide will give you a clear understanding of everything you need to know about factoring
How Factoring Works
Factoring works in five easy, simple steps
- You offer a service for your client
- You ensure the factoring company gets the invoice
- You receive advance payment from the factoring corporation on your invoice within 24 hrs.
- The factoring corporation receives the whole amount from your client
- You receive payment for the invoice from the factoring corporation after extracting a small amount.
More Factoring Benefits
- Depending on the quality of your client’s credit, instead of the credit or history of your business
- Free background support from the office, including handling the management of your collections
- You don’t incur any debts.
- Your company grows together with the available finances
- Customized in a way that allows your company to receive capital in times of need
Companies that Use Factoring
Various companies, regardless of their sizes, generate cash flow through factoring. You can use Factoring across different industries like transportation, textiles, healthcare, manufacturing, trucking, staffing, contracting, and more.
Most companies factoring in British Columbia pay inventory, hire more employees, purchase more equipment and increase operations using the money produced from factoring.
The Total Cost of Factoring
The factoring corporation generates money for each invoice through the factoring fees. There are various fee structures developed for multiple factors. Some charge the whole amount of factoring depending on how worthy the client’s credit is or the number of invoices you submit in a month.
Additional costs may cover collateral, money transfers, and other charges paid to factor companies. When selecting a factoring provider, ensure you keenly have the fee structure. Ensure you work with the factor that is open about their fees.
What are the Different Types of Factoring?
Recourse and non-recourse are the two different categories of factoring. Recourse factoring is when the refactoring client becomes accountable for ensuring the invoice balance is apparent when the corporation cannot receive the money from their debtor.
Non-recourse, on the other hand, is when the factoring corporation is in charge of most of the risk involved in credit regarding collecting an invoice. Some factoring corporations offer both options to clients depending on what they want.
Ensure you clearly understand the stipulation connected to non-recourse factoring before selecting this option since its rate of factoring usually is higher.
You are managing how your resources through factoring companies enable you to provide better conditions for your clients and minimize the total cost of administration. Proceed with business practice by including a factoring company in your business factors.