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Understanding

Factoring

Small businesses often don’t have the credit they need to borrow working capital, especially if they’re just starting up. Sometimes a business doesn’t want to add debt to its balance sheet. If you’re looking for funding that covers your business’s everyday expenses without getting a loan, try factoring.

Factoring uses your accounts receivable assets to get advance payment in cash. Why wait 30, 60, or 90 days for your customers to remit payment when you can have it in 24 hours or less? You can factor invoices, purchase orders, and contracts with a financial firm that pays for them upfront. Then, they collect payment directly from your customers. Factor one invoice or several at once for a larger payout.

Factors, or factoring firms, give you a percentage based on the value of your AR. They then collect on the invoice from the customer. After a small factoring fee, the rest gets forwarded to you. Most factors charge 3%-5% of the financed value. If you factor an account worth $100,000 at 80%, your business receives $80,000 now. When the customer pays, the factor recovers their $80,000. At a fee of 3%, the factor charges $2,400, meaning you get back $17,600 at the end of the deal.

how to

Effectively Apply Funds

Factoring is effective for businesses that have trouble qualifying for loans or who just don’t want to take on more debt. It’s also a great tool to boost cash flow in advance of large orders or increased sales. If your business gets a purchase order you don’t have the materials to cover, factoring lets you have the cash you need right away. You can deliver to your customer as promised without spending resources on a loan.

Factoring can be approved in as little as 24 hours and funds can be used as working capital. It’s a useful tool when you can’t afford to wait on a conventional loan or need to increase your cash flow more than once. You don’t have to worry about repaying the factor unless your customer requests a refund or fails to pay their account.

Factoring Options

Inventory

Factoring gives you cash right away so you can bring in new inventory ahead of a seasonal rush, special event, or large order. Don’t lose customers to your competition because you struggle to meet demand. Ask our brokers about factoring your accounts receivable today and unlock the potential of your AR assets.

Payroll

Do you need to hire new staff but don’t have the cash on hand to manage payroll? Use factoring to supplement immediate revenue so you can build your team today. The faster you can onboard personnel, the sooner they can get to work growing your income stream.

Utilities

Energy markets can be unpredictable, sending the cost of your utilities skyward without notice. If you’re hit with an unexpected utility cost hike, use your accounts receivable to boost cash flow. Handle your utility expenses now with factoring and avoid late fees and other charges that could cost you in the future.

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FAQS

Q. When is factoring not a good fit?
Factoring brings in money fast from outstanding accounts. However, not all businesses use invoices or purchase orders. If your company doesn’t have AR assets to sell, factoring is not a good fit. When you need working capital fast, choose an SBA 7a loan, hard money loan, or line of credit. Ask our brokers for details.
Q. How do I find the right factor or factoring firm?
Not all factors have the same fee structure and some specialize in specific accounts. So, how do you know which firm will give you the most value for your AR? Working with a broker is your best bet for finding a factor that meets your business needs.
Q. How much money can I get with factoring?
You can usually get 80-90% of the account value when you factor your AR. When your customer pays, you’ll get the remaining percentage, minus the factoring fee. So, if you have a purchase order worth $200, you can get $160 now if the factor funds at 80% and $180 if they fund at 90%.
Q. How long does it take to get cash from factoring?
The time it takes to get your funds depends on if you’ve factored with the same company before. For new approvals, you can typically get accepted and funded in less than a week. If you’ve used the same company before, the turnaround time is usually shorter. Ask your broker what the timeline looks like for your individual situation.

FACTORING Advantages

Get cash
fast

No
new debT

Receive 80-90% account value

Factor one or many accounts

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