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What are the benefits of Factoring?

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  • Cash Flow. This is often the greatest draw for companies that choose to employ a factor. Particularly within a young, growing company, there is a frequent, if not constant, need for ready access to funds. Even if an account is not late, replacing that account with cash from a factor affords a company the ability to continue to expand its market or develop its products and services.
  • Administrative Ease: There are two separate components within this factoring benefit. First, even if your accounts receivable are generally paid on time, accounts receivable collection may draw significant amounts of time and energy from your company. When a factor purchases accounts receivable, they assume responsibility for the collection of the account, so your business has the opportunity to concentrate on other things. Additionally, as opposed to traditional loans, there are relatively few administrative hoops within a factoring transaction.
  • Debt-Free Funds: Rather than taking a security interest in the assets of your business, factoring agents simply purchase accounts receivable. As a result you receive quick cash without the risk of offering your assets as collateral. This may be especially advantageous for a young, low-asset company with little collateral available for a loan. Moreover, when making a determination about factoring, factors usually examine the credit of the debtor rather than the owner of the account. Consequently, a factor may purchase some of your accounts receivable despite credit problems for your company.
  • Protection: Whenever a debtor fails to pay an invoice, your company faces immediate costs, with the added potential for long-term collection costs. Those costs mount if you choose to employ a collection agency. In contrast, you are immediately freed from collection issues if a factor purchases the account, and in the case of a non-recourse agreement your company is completely free of a potentially uncollectible account.



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