Factoring Factors

Obviously, factoring is not an idea that works for most startups, because consistent accounts receivable must be in the pipeline for a factor to be interested. But for those more established companies that do have money owed to them every month, factoring can be a great solution. It can provide immediate working capital for inventory, payroll, improved facilities, projects, anything.

In return for that almost-instant cash, you must be willing to give up some of the money you are owed to the factor, and also be willing to have the company whose invoice you are selling learn of the sale; it will be paying the invoice to the factor and not to you.

Another nice thing about factoring is that it is a relatively easy and quick process, especially in comparison to, say, getting a bank loan. Indeed, the factor cares little about your creditworthiness and is really only concerned about the payment history of your customer. If your customer pays in full and on time, you are in business. Usually all the factor needs from you is proof that all services are complete or that all products have been delivered as promised. Once you show that, selling your invoice on that deal should be a breeze.

Factoring is ancient. The earliest known account of factoring is in Babylonia's Code of Hammurabi, which dealt with, among other things, the trade practices of merchants, their agents, and how to properly deal with trade credits.

Factoring makes sense for a lot of different businesses. ...

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