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.
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!
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.
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.
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.
---R Scott Reynolds, CPA