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Different Types Of Factoring

When your organization is dealing with a bunch of cash flow problems, there are many things that you can do about it such as turning to factoring. What is factoring and what are your options? Your invoices that are past due need to be collected on in order to give you money to go back into your cash flow. These accounts receivables can be sold off to another company in exchange for money now. The company will then take over the collection process and you will receive about 80 to 90 percent of the total invoice amount in about 48 hours.

Selling off your invoices for a discount may not be something that you want to do but when you are dealing with a lot of money that is tied up in your cash flow thanks to these overdue invoices, it may be the only option you have. Before a company will consider working with you they will take a look at many different aspects of your business from the credit rating of the company to the cash flow and financial credentials of your company. This allows them to see the risk that they are taking on and if they should offer you their services and money.

To try and prevent your company from needing to sell off the invoices for a discount you should take time to really work on creating an effective collection and payment program for your customers. You need to make it clear on your invoices that you want to make it easy for them to pay and you have payment programs that they can use. Collecting on the money that is owed to you is important to the success of your company.

The big downside to working on the collection issue is that your employees will need to call the customers and haggle them to get them to pay. When you hire out the factoring company you will be able to get the payment sooner so you don't need to deal with this collection process. You will also be able to look at other things as well like having money now to pay your vendors for raw goods and other products. There are some cases where you have to look at how the company will pay you. In some cases the factoring firm only pays half of the invoice now and will pay the rest when they are able to collect on the invoices.

Work with multiple factoring firms to see how they pay and to determine if this will work for you or not. You need to see if you qualify for their rates and to find out what will happen if you have customers that end up defaulting. Here are some of the common types of factoring that you can choose from:
- Recourse factoring. This is where the customers cannot make their payments so the factoring firm will determine if they can recover the debt with payments. The downside is that if the factoring company cannot claim the money, they can charge you for their services anyhow and will charge you for the debt amount.
- Non-recourse factoring. Here you have a situation where the customer doesn't pay and the loss is reported to credit bureaus and charged to the client. The company may offer you what is similar to a credit extension so you can come up with the money to pay the debt.
- Maturity factoring. This is the most commonly used type of factoring. Its where you sell the invoices at discount and you end up with money in your account in 48 hours or less. If the factoring company cannot collect, they can terminate the agreement and will charge you for a loan bearing interest.

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