What is Factoring?
Factoring is the sale of commercial accounts receivable or invoices by a business. The factoring company typically advances between 80% and 90% of the gross invoice amount to the customer, providing immediate and predictable cash flow. Once the factor receives payment on the factored invoice, the portion not advanced to the customer less the factoring fee is returned to the customer in the form of a reserve return. Reserve is returned to the customer on a daily basis.
Here are some examples of how factoring could help you:
Example: Converting Invoices To Cash
You are owed $5,000 by a company who you expect will pay in 30 days. You sell your invoice to a factoring company who advances you a majority of your gross invoice amount immediately. The factoring company then receives the payment, closes the invoice and issues a reserve return.
Example: Smoothing Your Cash Flow
You issue invoices of approximately $30,000 each month and have a variety of clients who can take between 1 to 3 months to pay. Although you issue invoices regularly, the money comes in at unpredictable times making it difficult for you to manage your cash flow.
You contract out the management of your receivables to a factoring company. They advance you immediately for the invoices, collect the debt, and manage your sales ledger for you which cuts down on your administration costs.
Example: Obtain Funding Secured By Your Invoices
You have no assets, but issue invoices of approximately $500,000 each month. With clients paying in approximately two months you have a book debt of $1 million. Obtain capital from Caprock secured against outstanding invoices, enables you accelerate your cash flow and use it for business growth.
Factoring is a quick and easy way of turning your invoices into cash.