Factoring refers to the sale of a company’s accounts receivable invoices to a factor in order to get working capital. This is otherwise known as receivables factoring, bill factoring, accounts receivable funding, and invoice discounting.
Receivable Funding Must-Knows
No debt will be created – As compared to the traditional Asset Based Lending, this financing option won’t create debt since it is not a loan. In fact, it can create a more attractive balance sheet since a factoring company purchases your invoices and pays you on those.
It is very flexible – If you factor, you will be able to control which clients you want to factor. In turn, this allows you to secure operating cash that will meet the needs of your business.
Your credit will be improved – With factoring, the increased working capital will provide you the best means to pay your vendors and bills on time. And this can definitely affect your credit score.
How It Works
You must receive credit approvals for your customers ahead of the funding. After you have shipped the merchandise, you bill the customer with a notification that instructs them to pay the invoice directly to the factor. It will be the factoring company that does all the collection work so you can spend your resources on growing your business rather than making collection calls.
Trivia Info Resource: business.hsbc.com.qa