There are many advantages for a business to use factoring or the sale of accounts receivables to obtain funding. This is very different from a loan as it is an advance on the accounts receivable. The factor will then deduct the service fee and provide the cash into the business count, which can be in just hours for established customers.
Whenever a business chooses the process of factoring accounts receivable, it will be critical to understand the terms of the service. Different factors may have a variety of additional fees, specific requirements for factoring and even penalties if you wish to terminate the use of their service.
To help ensure you don’t make a mistake, always be sure to read all the information for the factoring service. This includes checking out any fine print for issues such as:
Recourse or non-recourse – non-recourse factoring accounts receivable companies do not charge you if your customer fails to pay. The factor assumes the risk for the payment, which means you will never have to repay. Recourse factoring places the risk on your business. You will be required to pay the factor if the customer defaults except in very specific situations.
Minimum factoring volume – some companies will require a minimum dollar value of invoices per month or quarter. If your business fails to factor that minimum amount there can be additional fees and penalties or a higher rate.
Fees – always take the time to read the information on fees and costs to factoring accounts receivable through a company. This should be provided in clear, concise and easy to understand terms.
Top factoring services are a benefit to any business. They can provide a continual cash flow for your business without the need for complicated business loans, personal loans or other types of costly funding options.