TRADITIONAL FACTORING or ACCOUNTS RECIEVABLE
WHAT IS TRADITIONAL FACTORING?
Under traditional factoring, merchants borrow funds against their accounts receivable, in other words, it’s a sale of receivables. Merchants resort to Factoring to increase their immediate cash flow or working capital.
HOW IT WORKS
Advances are given to merchants against the value of their invoices, which are handled by the funding company. Fees are mostly based on the time of the invoice to be paid off.
NON RECOURSE FACTORING
Non-recourse factoring is the process of adding a bad debt protection, to ensure payments are still received even when the customers are unable to pay invoices
ADVANTAGES OF FACTORING
- Allows immediate cash flow
- Collateral Free
- Money can be made available for future growth by reducing the cash balance
- In case of multiple accounts receivables with different credit terms, factoring helps better the cash control
- The lender manages the accounts receivables, collects payments
ADVANTAGES OF DISCOUNT/RECOURSE FACTORING
- Flexible, can grow as your business grows, and can reduce when you choose
- Easy to transition back to conventional banking
- Pay off loans, make payroll without worry
- Meet seasonal demands
- Reinvest in business; fund marketing to grow your business
- Receivables management allows you to focus on your core business
- Take advantage of purchase discounts with volume or early payment
FACTORING PROCESS FLOWCHART
WHO ALL OPT FOR TRADITIONAL FACTORING?
A) Start Ups
B) Businesses seeking expansion
C) Businesses setting up in new geographies/markets
D) Businesses with payment terms for up to 90 days
E) Businesses unable to secure bank loans or other financing
NOTE: Factoring companies provide as high as 92% funds of the receivable value