Finance Blog

Features of a Factoring Company

A factoring company buys a receivable invoice from a business. Payment is made immediately in phases, and the factoring company is left chasing the debt with the client. Many businesses are now working with factoring companies because of the numerous benefits of working with them. Some of the features of El Paso factoring companies include:

Parties involved

The deal made with factoring companies comprises three parties; seller, buyer, and a third party. The seller is the one who provides products and services, while the buyer/client receives the goods and services. The factoring company is the third party, which organizes to ensure that the client pays off the provided services.

Advance Payments

When you enter a deal with a factoring company, you can receive 80 to 90 percent of the total invoice. This amount is the advance payment and is a risk taken by the factoring company. After the customer pays their debt through the factoring company, you can then receive the remaining amount. The factoring company retains a small amount as part of its fees. 

Credit Analysis

Factoring companies conduct credit analysis of the client on behalf of the business. The standard procedure is to analyze before finalizing the deal. Credit analysis gives the factoring company a clear view of the client’s creditworthiness to reduce the risk of debt loss.

Collection of Payment

Upon buying the organization’s receivable invoice, the factoring company follows up and directly collects the client’s payment. Their primary role is to ensure the customer pays their debt; otherwise, the company or business will incur losses, depending on the initial agreement.

Types of Factoring

There are two primary types of factoring; recourse and non-recourse. In recourse factoring, should the client fail to pay their dues, the business’s losses are incurred. On the contrary, losses are borne by the factoring company in cases of non-recourse factoring.

Other types of factoring are; invoice discounting, where the company provides advance payment and, in turn, charges an interest rate. Maturity factoring, on the other hand, does not give any advance but instead issues the full amount to the business upon closing the deal.

Factor Charge Fee

The amount charged by the factoring companies for service provides varies from time to time and is known as the factor charge fee. It depends on the current state of the market, type of factoring, and amount of debt owed.

Provide Reports

The factoring company is responsible for providing financial reports to the business. Every financial detail between the company, business, and the client is entered in a ledger, reported, and stored online.

Diversity of Factoring Companies

There is a wide variety of factoring companies to deal with your needs. They concern themselves with different sectors, from transportation, technology, and fashion, to medical and security. You only need to choose one that suits your business.

Conclusion

A good factoring company eases your financial burden and makes your business’s prosperity is their priority. You should understand a factoring company’s features to know what exactly to consider when seeking its services.

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