Washington Factoring Companies
Receivables Financing — Turn your Assets into Cash
Did you know that MasterCard/Visa is the largest form of factoring today? Retail merchants accept your credit card as payment because they have a contract with MasterCard/Visa. This contract allows the retail store/restaurant to expedite its cash flow by receiving the amount you charged—minus a small discount—within 72 hours after the transaction occurs. This gives retailers a steady cash flow, which is helpful in replenishing supplies.
What is Factoring?
For business-to-business transactions, in which credit cards are not applicable, factors are used. Using accounts receivable as collateral, a factor will expedite the rate you are getting paid, usually within 24 hours after a job is completed instead of the typical 30, 45, or 60 days. Factoring is a great tool for a company that doesn’t yet qualify for a traditional credit facility.
In factoring, the collateral used to borrow against (A/R) is based on the credit worthiness of your customers. In other words, factors purchase your credit-worthy accounts receivable at a small discount and convert your invoices (sales) into immediate cash. Factors can provide a cash-flow solution for companies that have experienced negative retained earnings and/or poor profits. Banks will only lend money against a company’s proven profitability. Typically, a business has to provide a minimum of two years of tax returns, profit-and-loss statements, and balance sheets supporting their profits.
Factoring is not a loan. There is no debt repayment, no compromise to your balance sheet, no long-term agreements, or delays associated with other methods of raising capital. Factoring allows you to use your own hard-earned assets to create cash for the growth needs of your company.
The Cost of Factoring
So, how much does factoring cost? The key term used in the MasterCard example is discount vs. interest rate. Factors will advance money against a receivable, charging a discount against the gross invoice amount. This discount can be as little as 1% on up. It is based on risk and time.
There are many ways of controlling financing costs with factors. If you would like more information about our factoring programs, please e-mail us at firstname.lastname@example.org or call Suzy Oubre at 1-877-594-9423.