Factoring is a method of financing by which a factor buys the invoices that are held by the supplier of a service to a customer. A company provides this information to the Factor on what invoices have not been yet paid. Suppliers or customers can be within the same country or outside.

The operation consists of the supplier to transfer to factor its invoices in exchange for which the latter will make an advance in net interest and commissions. The vendor gives the exclusive factor factoring all of its claims. The factor handles the collection of receivables.

In return, the factor advances to the seller the amount of receivables sold through the payment of commissions. If unpaid, the risk is insured by the factor which can not be turned against the seller.

Factoring is provided all around the world by financial institutions or factoring companies.

The provider of the factoring services will collect all invoices within a range that is determined before hand.

The factor provides three services: Financing of the client (in advance of delivery of a check); Management of debt recovery (this is the factor which is responsible to recover the amount of invoices); and Guarantee of payment of the latter (if unpaid, the risk is borne by the factor).

Given the apogee of factoring around small businesses, some factoring companies have decided to establish a percentage of the amount cover by them in case of failure of payment by the customers.

The main advantages or factoring are:

The first one is the fact that factoring will reduce the burden and the stress of the collection process and take it off the hands of company. Another advantage is that factoring companies already have successful collection techniques and technology that allows them to be more effective at the task. Factoring companies absorb the costs of the customer’s insolvency and make sure the company always receives the funds.

The advantages of factoring are:

Providing the total outsourcing of the client, the factor allows the company to make significant economies of scale: one on staff costs, and on the cost of insurance and the costs of bank financing.

Factoring allows companies to improve the planning of their income given that they would receive the amount agreed on the accounts receivable regardless of whether the customer pays or not.

Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com factoring services accounts receivable collections