As a valued advisor to your clients, it is always good to be updated on different financing options available to them.
Factoring is a form of asset based finance in which a business sells its eligible invoices (or third party insurance claims if the business is a medical provider) to a financial entity called a “factor” in order to accelerate cash flow.
The sale of the invoices (or claims) is structured using an installment payment process in which the factor pays a large percentage of the invoice value initially and the balance, less a small discount fee, once the debtor has paid the invoice. Typically the initial payment can be up to 80% of the invoice value. Discount fees are earned by the factor based on the time period that had elapsed from the date of the purchase to the day of the debtor’s payment.
With liquidity tightening, additional debt and lines of credit are more difficult for business to obtain while the demands on their cash flow are increasing.