Factoring has been around for thousands of years and was a common form of financing as trading nations developed in Europe and Asia. Many business people, especially in start-up companies, may be unaware about what factoring is and how it can help them grow.
‘Factoring’ is a mechanism whereby a business cashes out its receivables at a ‘discount’ to a ‘factor’. It is similar to how credit card systems operate in retail businesses. It can be an excellent growth tool, especially where a company wishes to take advantage of discounts on supplies, does not wish to use its bank line of credit or wishes to avoid collection headaches.
The ‘discount’ will depend on the customers’ credit ratings in the receivables, the volume of the receivables and how fast they turn. Typical companies attractive to factors include manufacturers, service, transportation, high tech and agriculture companies, temporary service providers and firms doing business with government agencies, which may be slow but reliable payers.
Grand Bay, Newfoundland
