Frequently Asked Questions on Factoring Services

Factoring is one of the easiest ways to receive immediate funds to be used for a business’ immediate financial needs. To fully understand what factoring is all about, here are some of the frequently asked factoring questions and answers regarding factoring services.

What is factoring?

Factoring is the sale of invoices (accounts receivable) at a discount in exchange of immediate money to finance the company’s continued business. The funds may be used for payroll, or to buy goods and services depending on the immediate needs of the company.

How does factoring differ from a bank loan?

Factoring differs from a bank loan in three main ways. First, factoring gives emphasis on the value of the account receivables and not on the company or firm’s creditworthiness. Secondly, factoring is not really a loan but it is the purchase of a financial asset or the receivable and third, the bank loan only involves two parties: (1) the borrower and (2) the lender while factoring involves three: (1) the one who sells the receivable, (2) the debtor and (3) the factoring company.

How long does it take to receive the funds?

Since factoring differs greatly from a bank loan, and factoring does not give emphasis on the firm’s credit worthiness but on the value of the receivables, it is then easier to receive funds when taking advantage of a factoring service than to apply for a bank loan. Factors make funds available in as early as three days as long as all the necessary requirements are filled out and properly submitted to them.

What happens if the customer fails to pay?

The results depend on whether the company entered into a non-recourse or recourse agreement with the factor. Within a non-recourse agreement, the funder assumes the credit-related loss.

These are only some of the factoring questions that may be helpful to understand what factoring is all about.