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How do factoring companies fund their purchases?

    • 50 posts
    May 10, 2013 9:19 AM EDT

    In short and simple words, I would like to share that factoring is one incredibly popular option that many businesses in many industries, are starting to pursue. Factoring can help you to turn your outstanding invoices into cash quickly, as well as offering a full credit control facility.

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    Invoice Factoring

    • 1 posts
    May 8, 2013 11:27 AM EDT

    Hi folks,

    The original question about where the factoring companies obtain the funds for the lending was answered with investor capital (equity) and debt.

    When one says "debt" what are they referring to specifically? A business bond? A loan from the bank? 

    At what interest rates do these factoring companies pay for this type of debt?

     

    appreciate the help!

    • 25 posts
    July 18, 2007 11:31 AM EDT
    Does anyone know where a factoring company comes up with the funds to purchase another company`s receivables?

    Kind of a broad question, I know. Any help is appreciated.

    Thanks,

    Mark Bebout
    • 25 posts
    July 19, 2007 4:34 AM EDT
    It seems like there are millions of them out there, is it really that easy to get into the business or are some of these companies simply generating leads for the companies that are actually doing the factoring?

    Also, do the factors just make money by charging the fee on receivables? So, for example, if a company charges 5% of a $100 invoice they make $5 when the invoice is collected? The reason I am asking is because it seems to to that if I have to use debt or investor capital to fund that $95 to purchase the receivable, by the time I pay the money back there would not be much left over. Am I missing something?

    The reason that I am asking is because I have been approached by an existing client asking me if I would be interested in factoring his receivables.

    Thanks for the help.

    Mark Bebout
    • 25 posts
    July 19, 2007 7:52 AM EDT
    So I think that what I am hearing is that factoring is not for the faint of heart?

    If I were interested in looking at the possibility of doing some type of factoring for my client, would you suggest I work with one of these companies and assume the role of the broker?

    Your information has been excellent.

    Mark Bebout
    • 25 posts
    July 19, 2007 9:06 AM EDT
    That is a good idea. I will check into it.

    Mark Bebout
    • 7 posts
    March 10, 2013 5:40 AM EDT

    I have been on both sides of the coin in factoring.  I used a fatof when growing my last business thru a broker. Whole I did receive the immediate liquidity on my invoicing which what I was looking for, I did not receive the other benefits that make the costs insignificant. Complete A/R management, credit screening and collections, to my growing company allows you to focus on what you are good at, and not on wondering where your cash is.  

     

    Now I provide factoring and cash advances to growing businesses and businesses that want to grow.  Factoring receivables is part science and part art.  The matter of defaults are not if they are going to happen but when.  

    With that said,  you are better off setting up a referral agreement with a broker that you feel can provide your clients the best overall services. 

     

    Pm me if you need more info.  

    • 5 posts
    March 3, 2013 8:17 PM EST

    Hi MarkB thanks for this update and got the best idea but i also want to say something that is factoring corporations pay eighty p.c of the invoice worth direct. Then they issue the remaining value--minus a resolution fee--once they've receive payment from your shopper. The resolution fee is decided by a mix of the credit good of your client base, the common terms, the invoice range and size, and resolution volume.

     

    banking factoring

    • 926 posts
    July 19, 2007 6:39 AM EDT

    Marshall,

    Excellent summary. Thanks for the information.

    Robert j

    robertj2007-7-19 11:40:55

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    Business Growth Masters, LLC -
    Capital Catalysts for Entrepreneurs
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    • 8 posts
    July 19, 2007 8:39 AM EDT

    You may want to check your state banking laws. Commercial financing is a regulated activity. In your state, you quite likely might not be able just "assume" the role of broker. You may need to be duly licensed in order to legally do so.

    Scott Reynolds

     

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    R Scott Reynolds, CPA
    www.b2bcfo.com