FACTORING SERVICES
Factoring is a financial
transaction whereby
a business job sells its accounts
receivable (i.e., invoices)
to a third party (called a factor)
at a discount in
exchange for immediate money with which to finance continued
business. Factoring differs from a bank
loan in three main
ways. First, the emphasis is on the value of the receivables
(essentially a financial
asset), not the
firm’s credit
worthiness. Secondly, factoring is not a loan –
it is the purchase of a financial
asset (the receivable).
Finally, a bank loan involves two parties whereas factoring
involves three.
Factoring
is a word often misused synonymously with invoice
discounting - factoring is the sale of receivables, whereas
invoice discounting is borrowing where the receivable is used as collateral.
The three
parties directly involved are: the one who sells the receivable,
the debtor, and the
factor. The receivable is
essentially a financial
asset associated with
the debtor's liability to
pay money owed to the seller (usually for work performed or
goods sold). The seller then sells one or more of its invoices
(the receivables) at a discount to the third party, the
specialized financial organization (aka the factor), to obtain
cash. The sale of the receivables essentially transfers
ownership of the receivables to the factor, indicating the
factor obtains all of the rights and risks associated with the
receivables. Accordingly,
the factor obtains the right to receive the payments made by the
debtor for the invoice amount and must bear the loss if the
debtor does not pay the invoice amount. Usually, the account
debtor is notified of the sale of the receivable, and the factor
bills the debtor and makes all collections. (
info from Wikipedia )
|
Standard Rates:
8.99% of total amount of invoice factored.
This amount is deducted immediately from the
value of the invoice upon payout.
This service is
great for contractors and subcontractors
that have completed their job and want to
get paid immediately. |
