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Factoring

Factoring is used as a financing solution for companies that have too much cash tied up in their commercial accounts receivable. Waiting 30 to 60 days or more to get paid can make it tough for any business to manage cash flow. Many young and growing companies have trouble obtaining traditional bank financing that could help them, due to their length of time in business, profitability, or financial strength. By factoring, your company can turn accounts receivable into instant cash allowing you to meet financial obligations such as payroll, taxes and staying current with vendors.

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Factoring is not a loan. Factoring is the purchase of an asset, your accounts receivable (invoices), at a discount by a financial institution called a factor in return for immediate cash.

While the history of factoring can be traced back over several thousand years, factoring became common in the United States in the garment and textile industries at the beginning of the twentieth century. It is now widely accepted as an alternative financing solution for companies in need of immediate cash for growth and or survival.

Factoring is used worldwide and has grown into a multi-billion dollar business. The speed, flexibility, and ease that factoring provides has made it an important financial tool making its way into almost every industry.

Running a business is challenging enough without having to worry about collecting money from your customers. Imagine having all the cash you need on hand to land new and bigger contracts and still being able to extend credit to these larger clients. When you sell your receivables to a factor you let them worry about collecting payment while you concentrate on running your business.

Read more on Benefits of Factoring

The factoring process is a simple extension of your normal course of business.

Your company sells a product or a service to a customer and issues an invoice. You then send a copy of the invoice to the factor so he can verify the goods or service sold.

The factor will send you an advance payment of 70% to 90% of the value of the invoice within 24 to 48 hours. The remaining balance or reserve is paid after the factor receives payment from the customer.

The factor waits to get paid by the customer who makes the payment directly to the factor.

When payment is received, the factor pays you back the remaining balance or reserve, minus the previously agreed upon service fee.

The initial setup time takes 3-10 business days. Thereafter, funding takes place within 24-48 hours of submission of invoice.

One of the misconceptions of factoring is that it is used only by companies that are in financial trouble. In actuality it is used most often for growth. Many established and successful businesses that are experiencing new growth and finding themselves in a cash flow crunch use factoring to satisfy their financing needs.

Read more on How Factoring Can Increase Profits

Give LDG Business Funding a call so we can help you with your cash flow needs.