Put simply, invoice factoring is the sale and purchase of a company's accounts receivable at a discount. The transaction occurs between a company with existing accounts receivable on its books and a firm known as a "factor". The factor advances a percentage of the invoices submitted (usually between 75%-90%) in cash usually right after the invoice has been created. The difference between the face amount of the invoice and the amount advanced is called the reserve. Upon collection of the invoice, the reserve less the factoring fee is remitted to the client.
Factoring is designed for companies that have cash flow issues. Typically, firms with cash flow problems fall into two camps: those that have sustained significant losses and are having trouble paying current obligations like payroll and operating expenses, and those who are growing at a very rapid clip.
If a company wants to start factoring, they must fill out, sign and submit an application. In our next post, we will discuss the application process.
November 6, 2007
What is invoice factoring?
Subscribe to:
Post Comments (Atom)
1 comment:
Invoice and receivables factoring really is a simple process once you know how it works (though I think your percentage of 75%-90% is a little on the high side) you'll find it really can be a great option for a quick fix to your financial difficulties.
Post a Comment