Factoring Accounts Receivables

Factoring is the process of selling accounts receivable to another party at a discount from face value. The title passes to the factor and is recorded on the factor's balance sheet since the title to the receivables has passed to the factor. Because the factor then owns the receivables, it generally provides all the required credit, collection, and accounting services necessary to collect the receivables, including assumption of the ultimate loss exposure from the client debtor. This is unlike borrowing against receivables where the borrower maintains ownership of the receivable and the receivables are pledged to the lender as security for a loan.

• Immediate cash on up to 85% of accounts receivable balances within 24 hours.
• Discounts which range from 2-5 percent of the invoice face value.
• Instant credit information provided for your new customers.
• Factoring volume ranges from as little as $50,000 to as high as $10,000,000 in net monthly collections.
• Off balance sheet financing.
• Can provides credit collection services.
• Increase sales by offering the same sales terms that industry leaders offer.

Two Types Of Factoring:

Recourse Factoring. This is the most common type of factoring transaction in the United States. This factoring transaction allows the factor to go back to the seller if payment is not received (normally after a 90 day period). The credit risk does not transfer to the Factor during the recourse factoring process. Normally, in the event of non-payment by the customer, the seller must buy back the invoice with another invoice (credit worthy). Recourse factoring is typically the lowest cost for the seller because the risk for the factor on the funding transaction is lower.

Non Recourse Factoring. This type of factoring puts the risk of non-payment fully on the factor. If the customer does not pay the invoice, it’s the factors problem to deal with and they cannot seek payment from the seller. This often seems like a great way to go, but the factor will only purchase solid credit worthy invoices and often turns away average credit quality customers. The cost is typically higher with this factoring process as the factor assumes greater risk.