Do factoring companies factor purchase orders or contracts? If so do they do it for new businesses? All the clients are Fortune 500 companies. Also does anyone know of factoring companies that do this?
It depends on who the company is.
There are many private companies and banks doing this type of finance.
From my experience the private companies are more flexible and open to trying different things whereas the banks can be very conservative.
Some will also do a case by case, invoice by invoice scenario rather than an entire ledger.
They generally purchase invoices but if the contract was watertight some would look at that too.
They normally only fund once the goods have been delivered or the services provided.
If you are based in Australia I can give you some good pointers. Send me a PM.
Factoring is the purchase of accounts receivable (invoices) by a finance company (called a factor). The normal factoring arrangement is usually entered by small businesses that cannot wait for their customers to pay the invoices, and need the cash to fund ongoing operating expenses. The business takes the invoices to the factor and gets a cash advance of 70% to 90% on the invoice amount. Once the customer pays for the invoice, the factor pays the rest of the balance due (the 30% to 10%).
You asked if factors would finance purchase orders or contracts. The answer is no. There is a lot more risk involved in this situation as there is an additional risk that your company will not perform. The way a lender would become comfortable with the risk is to find out about your operations and resources so that the level of operational risk is determined, and a decision could be made. In conclusion, we are looking at riskier more difficult to get financing.
Pm if you need assistance. I am experienced with both sides. I used a factoring company to help fund my cash flow in my last business, and now I provide working capital to growing businesses and businesses that want to grow.
Factoring, po financing, business cash advances. It's less about the money and more about the additional services you receive from your factor. A/r management, credit screening, quick turnaround.