What is Factoring?
Invoice factoring, also called accounts receivable factoring, is an effective way to help manage cash flow. It provides an alternative to traditional bank financing. Factoring provides quick liquidity to give your business the capital it needs for growth or on-going operational costs. As a source of funds, factoring is easier than going to a bank for a commercial loan since banks have many financial requirements that most small businesses do not meet. We provide cash flow services to many companies who do not quality for traditional bank financing or have been turned down.

How does it work?
A company sells its accounts receivable to a Factor at a discount and receives cash. There are two types of factoring:
  • Recourse Factoring - The Factor advances to the Company a certain percentage of the invoice up front and holds the balance of the invoice amount in a reserve account. The Factor then provides credit management and collection services to promote timely payment of the invoice. When the invoice is paid, the amount held in reserve is available to the Company to withdraw from their reserve account except for the fee percentage agreed upon with the Factor. If the Factor is unable to collect on the invoice after the agreed upon interval (typically 90 days), that invoice must be repurchased by the Company through either recourse deduction from their next invoice batch or through charge back against the Company’s reserve account.
    • Example:
      • Company has an invoice for $1,000 in sales to factor
      • 90% or $900.00 is advanced by the Factor to the Company within 24 hours of receipt of invoice. This up-front payment is an advance on the purchase of accounts receivable.
      • 10% or $100.00 is held in reserve account
      • Factor collects the $1,000 due on the invoice from the Shipper/Consignee/Broker
      • When invoice is paid, the Factor deducts it’s agreed upon fee percentage (3% or $30 for this example) from the $100.00 being held in reserve account. The remaining $70 is then available for release from the reserve account to the Company.
  • Non-Recourse Factoring Factoring – The Factor advances to the Company an agreed upon percentage of the invoice up front, and retains the agreed upon fee percentage. In this type of factoring the Factor assumes full credit risk for collection of the invoice.
    • Example:
      • Company has an invoice for $1,000 in sales to factor
      • 95% or $950.00 is advanced by the Factor to the Company within 24 hours of receipt of invoice to purchase the invoice.
      • Factor retains 5% or $50.00 as their fee and assumes full credit risk for collection of the invoice.
      • Typically factors will only accept invoices for Non-Recourse factoring on your customers/debtors with an above average credit rating; but, they may accept invoices on your other customers with lower credit ratings on a Recourse basis.

Call: 1-877-784-3433
Email: info@fortifiedfinancialservices.com
Fax: 1-321-978-0326