So you’ve got questions? We’ve got answers to frequently asked questions about Mid-Continent Financial Services.
What is Factoring?
Factoring is a transaction in which a business sells its accounts receivable, or invoices, to a third-party commercial financial company, also known as a “factor”. This is done so that the business receives cash more quickly than it would by waiting 30 to 90 days for a customer’s payment. Factoring is sometimes called “accounts receivable financing”.
What are the Advantages to Factoring?
There are several reasons why factoring is a valuable financial tool for many businesses. The key benefit is that factoring provides a quick boost to in cash flow. Many factoring companies provide cash on your accounts receivable within 48 hours. This can solve short-term cash flow issues and help fuel the growth of your business.
Some other major benefits include:
- Factoring can be customized so that it provides necessary capital when your company needs it.
- The financing does not show up on your balance sheet as debt.
- Factoring is based on the quality of your customer’ credit, not your own credit or business history.
- Factoring provides a line of credit based on sales, not your company’s net worth.
- Unlike a conventional loan, there is no limit to the amount of financing with factoring.
- Factoring aligns well with start-up businesses that need immediate cash flow.
Who is Factoring?
Companies of all sizes, from one-person business to Fortune 500 corporations, use factoring as a way to increase their cash flow. Factoring spans all industries, including construction, trucking, transportation, manufacturing distribution, textiles, oil & gas, security staffing agencies, software developers, research laboratories and healthcare. Companies use the cash generated from factoring to pay for inventory, payroll, new equipment and any expense related to their business. Factoring allows a company to make quicker decisions and expand at a faster pace.
How does Factoring work?
Here is an example to illustrate a common factoring situation:
XYZ Manufacturer receives a large new order that will really help expand the business, however after he produces the widgets XYZ is going to be short of cash for payroll and other ongoing expenses. The customer will pay in 30 to 60 days causing XYZ not be able to serve existing customers. If XYZ factors the invoice the company will have cash to continue operating as usual and expand his business.
Is Factoring Similar to a Bank Loan?
No. Factoring is not a bank loan and you are not assuming any debt.
The emphasis is on your customers’ invoices, not on your balance sheet. Normally, factored funds are available more quickly than with bank loans, usually within 48 hours. Factoring provides a steady flow of cash whereas bank loans are usually one lump sum. Factoring companies can also assist with the credit and collection functions, which improve your company’s balance sheet. While bank loans add to your debt, factoring converts one asset (receivables) into another asset (cash). In many cases, bank loans can be difficult to obtain and are limited by your balance sheet.
What is an Example of Factoring?
XYZ Manufacturer receives a large new order that will really help expand the business, hoever after he produces the widgets XYZ is going to be short of cash for payroll and other ongoing expenses.
The customer will pay in 30 to 60 days causing XYZ not to be able to serve existing customers.
If XYZ factors the invoice, the company will have cash to continue operating as usual and expand its business.
NOTE: Factors are not debt collectors they only factor fresh invoices
How do I know if I qualify?
Do you invoice your customers?
Do you need to improve your cash flow?
Do you have solid customers, but wait 30 to 90 days for payments?
Would factoring, a line of credit or working capital loans help?
What other services do you provide?
Import/Export Management and Funding
Commercial Loans, Missouri Only
Cargo Insurance Air, Land or Sea
Do you have a broker program?
Yes we do and pay referral fees. Learn more about our broker program here.
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