How Business Factoring Works
One of the biggest problems a new company may face is getting paid on time. Many businesses wait between thirty and ninety days to get paid for their products or services. In the meantime, they still have bills and payroll to pay. Of course, the company could take out a revolving line of credit but today when banks don’t lend money easily, especially to a new business, it’s very difficult or nearly impossible to do. What can they do? The best choice would be to pursue business factoring to get cash.
Business factoring is borrowing money on accounts receivable, in other words, selling the invoices to a third party and getting a portion of the money owed in return. It isn’t loan, it’s a sale of assets. A loan is a transaction between the bank and the company. Business factoring involves the company that sells the invoices, the factor company (usually a bank) that buys the invoices and the third company or companies that owe the money. The factor pays the company a portion of the face value of the invoices and holds a portion in case there are any disputes. It also charges a percentage or a set fee for their service. The factor then collects the payments directly from the companies that owe the money. Once the funds are collected, they pay out the money to the company minus their fees. The fees depend on financial reliability of the companies that does the factoring and the one that owes money. If the first company’s product or service is trustworthy and hasn’t received any complaints from the customers, the factor will lower its fees. If the company that owes the money pays its bill on time and doesn’t cause any problems or files any disputes, the factor will also lower the fees. Factoring is generally better than a bank loan because the company receives more money for the receivable that it would be able to borrow from a bank and it doesn’t have to worry about collecting money.
One of the top business factoring companies is Orange Commercial Credit. It has been offering services to small to mid-size businesses through factoring for nineteen years. It focuses on providing financial services and support with integrity, expertise and experience.
