Factoring is a financial solution that allows businesses to convert their accounts receivable into immediate cash. It can be used as an alternative to traditional financing and provides businesses with the ability to access funds quickly and easily, without having to wait for customer payments or apply for bank loans. With factoring, businesses can improve their cash flow while still being able to meet customer demands.

There are two main types of factoring: recourse and non-recourse.

Recourse Factoring

Recourse factoring involves an agreement between the business and the factor (the lender) in which any unpaid invoices will be returned back to the seller if they remain unpaid after an agreed upon period of time (generally 60 days).

Non-Recourse Factoring

Non-recourse requires no such agreement; instead, it simply means that once payment has been received from customers, all outstanding invoices have been paid off in full.

Additionally, there are also a few different methods available depending on what kind of services a business needs from its factor, such as: spot factoring, selective factoring, portfolio factoring and whole turnover/invoice discounting.

Spot Factoring

Spot Factoring is when you only need help with one invoice at a time – this could be useful if your company experiences sporadic demand or does not generate enough sales volume for regular use of other forms of funding like lines of credit or asset-based lending products.
Selective Factoring is when you select specific invoices that need quick payment.

Portfolio Factorings

Portfolio Factorings covers all receivables within your organization over a certain period.
Whole Turnover/Invoice Discounting gives you access to funds against all outstanding invoices up front, along with additional working capital options throughout the year as needed.

Factors generally charge fees based on either flat rates per invoice or percentage rates applied across entire portfolios - though terms may vary depending on factors’ individual policies regarding how much risk they are willing take on for each client relationship.

Fees may also include setup costs associated with setting up new accounts, as well as ongoing servicing fees which cover administrative tasks. Such as data entry and tracking customer payments against open balances due from customers who have purchased goods/services from your company but haven’t yet paid them off in full yet.

Overall, using some form of commercial finance product like Invoice Financing can provide companies with flexible working capital solutions. It is designed specifically around their own unique needs – allowing them more control over cash flow management by converting existing receivables into immediate liquidity without taking out further debt obligations through banks or other lenders.

If your business would benefit from being introduced to companies that can provide this service, and who are comfortable with higher levels of risk than traditional banks, get in touch, and we can make the introductions.

About the author

Murtaza Manji
Business Strategy & Leadership Coach
Entrepreneur, award-winning business strategy coach, and international speaker, Murtaza Manji is the co-founder of Kaizen Consulting Group which he set up in the UK in 2011 before expanding to the UAE a year later. Since then, the company has evolved significantly with ambitious plans to expand further. His vision is to positively impact the countries the Group operates in by supporting clients to create lasting values and legacies.

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