Factoring receivables

Factoring receivables is a way to get the majority of the money owed to you by your customers fast, usually within 48 hours, from a factoring company.



Realizing the money owed to your business quickly in this way may allow your business to do things that it could not have done without factoring receivables such as order increased supplies or refurbish the shop premises thereby increasing sales and profits. Many people with small businesses do not understand exactly what factoring receivables entails.

About: Accounts receivables factoring

Factoring of receivables consists of the following process: the business invoices the customer and sends a copy of the invoice to the factoring company with whom it has an ongoing invoice factoring agreement. The invoice factoring company places say 90-95% of the value of the invoice in the businesses factoring account usually the following day. The customer then pays the accounts receivables factoring company the full amount of the invoice and the accounts receivables factoring company then pays the business the remainder of the value of the invoice less the accounts receivables factoring company’s costs.



There are usually two costs involved in accounts receivables factoring. The first is the service charge or administration fee which usually ranges from 0.5 to 3% of the total of the invoices sold. The second fee associated with accounts receivables factoring is the discount charge, which is calculated daily based on the amount of funds drawn from the factoring account. The costs will of course depend on the services provided by the accounts receivables factoring company.