Factoring, also known as receivables financing, is a popular form of raising capital. While it is not for everyone, it can be useful if your business has a large volume of receivables. Essentially, a factoring company advances to your company the value of a percentage of your receivables, less a fee, and assumes the responsibility to collect the factored receivables.
When you factor your receivables, you usually end up with between 50% and 90% of their value, depending upon the creditworthiness of your clients and your company's collection history. When the factor collects the receivable, it forwards the balance to you less a fee that can range from 2%-7%. The advantage of factoring is immediate cash flow to the business without a long-term debt obligation. The disadvantage is that the process is fairly costly.
Factoring Guides: A source for factoring companies can be found in Edwards DirectoryofAmerican Factors, Edwards Research Group, Inc., Newton, MA (Www. edwardsresearch. com). This factor guide is usually available at public libraries as well.