Benefits of Factoring Your Business’s Receivables

By factoring its receivables, a business can significantly accelerate the cash collection cycle. This is particularly useful to businesses that have a mismatch between short term expenses and slow paying customers or customers with generous payment terms.

A factoring transaction is when a business sells its receivables to a third party (the factor) at a discount (typically ranging from 10% to 30%) for immediate payment. When the factor is paid by the customer, the factor will remit the discounted amount back to the business minus a factoring fee.

Consider the example of a business that sells $100k of bicycles once a month to a retailer with 60-day terms. When each shipment is received by the retailer, a factor would buy the receivable and immediately pay the business $90k. When the retailer ultimately pays the invoice in 60-days, the factor will remit the remaining $10k minus, their factoring fee.

Benefits of factoring:

• Provides a business with immediate cash

• Allows a business to offer payment terms to customers

• Helps manage the credit risk of customers

• Fast and easy to implement as the underwriting focus is on the receivables not the business

• Factoring line can increase as the dollar amount of receivables increases

• Sale of receivables to a factor isn’t consider a loan / debt

• Typically, not recourse to the business

Common industries where factoring can be helpful:

• Staffing – especially medical and IT

• Manufacturing

• Distribution

• Trucking

• Other B2B businesses

Morewood Funding helps businesses and commercial real estate investors/owners access capital. If you would like to further discuss how factoring or other loan types might benefit your business, please call or email:

Howard Abrahams

President, Morewood Funding, LLC

917 561 7074

Howard@MorewoodFunding.com