8/14/2023 0 Comments Companies that buy unpaid invoicesOnce the fee and immediate payment amounts are agreed, share a copy of the invoice with the factor. How it worksįinalize the sale, deliver the products or services and raise an invoice highlighting the terms of payment, including who your customer will need to pay (in this case, the factor). Risky debtors aren’t a factor’s favorite – often, managing them will still be left to you.If it’s negative, this could lead to a loss of goodwill. How the factor goes about debt collection can affect customer relations.You get a smaller slice of the pie – paying a percentage fee to the factor means your profit margin is reduced.The factor usually looks after the credit check, collection of debt and the resulting admin, which frees up time so you can focus on the business.Having cash in hand gives you an advantage by allowing you to snap up early discounts and deals with suppliers.It helps improve immediate cash flow, which you can use to grow your business.Whereas with ‘non-recourse factoring’, even in the case of bad debt, the risk lies with the factor and doesn’t affect your business. With ‘recourse factoring’, the responsibility – and therefore the risk – for any unpaid invoices lies with the seller (AKA you). This is usually a percentage of the invoice amount and the final rate can depend on various aspects including the number of invoices, the amount of risk, etc. Factors charge a fee in exchange for providing cash and taking on the risk. One of the oldest tricks in the financial services book, factoring is a short-term solution where a business raises capital by selling its accounts receivables (outstanding invoices) at a discount to another company, known as the factor, which then takes on the risk of default.
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