What is Commercial Factoring?

Commercial factoring is a process in which your company to sell its account receivables or invoices to a factor (also referred to as the funding source).  This allows you to receive cash for the revenue you have earned in approximately one day.  Depending on the factor that you choose to work with, you will receive an upfront payment that is seventy to ninety-five percent of the full value of the account receivable or invoice.  Once the factor receives payment from the customer, you will get the remaining value of the account receivable or invoice (minus a small service fee).  Obviously, commercial factoring can provide any company with several advantages, including:

Analysis of Your Customer's Credit: Before a factor buys an account receivable or an invoice, they will run an analysis of that customer's credit.  This is to ensure that after they purchase the account receivable or invoice, they will actually receive payment from the customer for it.  Once they have completed their analysis of that customer's credit, you are actually entitled to view the results of their analysis.  By viewing their results, you can determine whether or not you want to engage in future transactions with that customer.

Increased Cash Flow: The main advantage of using commercial factoring is that you can dramatically increase the amount of cash flow that your company can use during its operations.  Instead of waiting for weeks or months to receive payments from your customers, you can access the money you have earned in one day or less.  By having a reliable and steady cash flow, you can ensure that your company can fulfill all of its obligations to current customers and also take on any new customers that may be interested in working with your company.

Decreased Dependence on Loans: Many companies attempt to use loans to increase their cash flow.  However, this solution is not ideal because it does not address the core of the problem.  When you use loans instead of factoring, you are still faced with paying high service charges and fees.  By choosing factoring, you are actually using your own money to keep your company's cash flow where it needs to be!