Factoring
Sell accounts receivable, contracts, and high-value purchase orders to a factor for a quick infusion of cash.
Factoring gives businesses a fast way to get money when they need it most. You can use factored invoices as collateral for other business needs or simply take advantage of the immediate liquidity provided by factoring. The best part about Factoring is that there are no upfront fees! No upfront fees mean more working capital in your pocket today.
Factoring from JD Rowe Financial
It can be difficult for a business to manage its cash flow when outstanding invoices are holding up progress. If clients have up to 60 or 90 days to satisfy a balance, it takes time before those invoices generate the capital necessary to cover business expenses. This scenario creates tension that puts undue stress on business owners.
Factoring provides quick relief in these situations, with fast financing and flexible options. Rather than waiting for clients to pay, a company can work with a factoring agent to expedite the process.
Typically, factors will prepay an outstanding invoice (usually up to 80 percent) and recover those funds directly from the party paying. However, factoring can also work for purchase orders and long-term contracts.
What Is Factoring?
A factoring transaction works like any other type of sale in that the seller transfers ownership of their assets to another entity. With factoring, the asset sold is not inventory. It is money owed by customers. When you sell your customer base to a third party, they become known as accounts receivables. Accounts receivable are simply monies due from current or past customers.
Types of Factoring
There are three primary ways to use factoring to access cash. At JD Rowe Financial, we help you find the best type of factoring for your business and situation.
Accounts Receivable
For some businesses, offering extended repayment terms to clients is standard practice. Unfortunately, if clients wait until the end of the period to pay, that can create cash flow problems for the business owner.
Factoring offers relief by financing most of the invoice up-front so that the business can get funding without borrowing or taking out a loan. Even better, factoring agents usually pay within 24 hours, so the process is perfect for fast cash. Then, once the customer pays the balance, the remainder goes to the business, minus a factoring fee.
Purchase Orders
Purchase orders are a common form of contracting between clients and businesses. However, for some companies, fulfilling the request can sometimes be a struggle. In these instances, the enterprise might have to borrow money to pay for materials and labor up-front, creating problems down the line.
Instead, it is often better to work with a factoring company. Once the business receives the purchase order, the factor can finance most of the amount immediately, freeing the business from taking out a commercial loan. At order fulfillment, the customer pays the remaining balance, which goes to the company.
Contract Financing
Some businesses have cyclical earnings that ebb and flow based on consumer demand. For example, retail manufacturers are typically busy in the months leading up to the holiday season and then slow down afterward.
In these cases, once the business receives a contract from its clients, it can access those funds through Factoring. Sometimes, this process is necessary to ensure the fulfillment of the contract. In other instances, the company uses the money to cover expenses during slower parts of the year.
Contract financing is a viable solution because the company can tap into the funds at any point during its lifecycle.
What Are the Advantages of Factoring?
Factoring offers many benefits for businesses, including accessing cash quickly.
- Reduces the credit risk of sellers
- The working capital cycle runs smoothly as the factor immediately provides funds on invoices
- The sales ledger maintenance leads to a reduction of costs
- Improve liquidity and cash flow in the organization
- Businesses pay creditors promptly, which aids in negotiating better discount terms
- Savings in administration or collections costs
Find out if factoring is right for your business. Contact JD Rowe Financial to learn more.
Factoring FAQs
Is Factoring A Loan?
No! Factoring is not a loan. Instead, it’s a way to increase your working capital. The difference lies in how you use the proceeds. You must repay the entire amount borrowed plus all associated charges and interest with a traditional bank loan. When you factor in receivables, you only need to reimburse the amount advanced against them. With factoring, there will always be more leftover than if you had taken out a loan.
Do Banks Do Factoring?
Yes! Many banks offer factoring as part of their overall lending service. They do so by entering into contracts with third-party vendors who act as factors. These agreements allow the vendor to advance monies due to the client against future accounts receivable. When the time comes for payment, the account debtor submits their invoice to the factor where they become collateral until repayment.
Can A Business with Bad Credit Benefit from Factoring?
Absolutely! Even though most factoring firms require good credit histories, many small to medium-sized businesses find that factoring offers benefits even without perfect credit. By using factoring, SMB’s can improve their financial position while still maintaining control over their finances. If the customer pays back the advances made, the business does not lose ownership of the invoiced goods, nor does it incur additional finance charges.
Need help in making better financial decisions?
JD Rowe Financial Helps Businesses Access Cash Through Factoring
At JD Rowe Financial, we partner with commercial clients to connect businesses to financial solutions. We are an independent financial company, which means when you work with us, you have expanded options to find the best solution for your business.
Our factoring service gives businesses the knowledge needed to think outside of the box. We walk you through each step in the process to ensure you feel confident with your next financial move.
Contact us today to learn more about how to grow your business through factoring.
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