Factoring Companies For The Wholesale Industry
What is a factoring company? For many manufacturers and wholesalers, "factoring" means getting your monthly accounts paid by the factoring company instead of having to wait an extended period of time to receive a payment from their buyers. While this might be an effective way to pay invoices for many businesses, it can also be dangerous - especially if the interest rate and fees charged eliminate a sizable portion of your profit. When looking for a factoring company, it's important that you know what you are getting - especially the interest and fees that you will be charged.
Factoring agreements are essentially loan agreements designed for manufacturers, or wholesalers, who need money now, and can't wait 30-90 days to receive the payment from their customer for the wholesale products which they have sold.
For example, when Calvin Klein sells dresses to Macy's, the brand can wait 30-90 days for Macy's to pay for the dresses (assuming that Calvin Klein has extended credit terms to Macy's) or it can sell the invoice to a factoring company. The factoring company will pay the amount on the invoice to Calvin Klein, minus applicable fees and interest, and collect the full invoice amount from Macy's in 30-90 days. The factoring company makes its money by keeping the spread between what it paid Calvin Klein and what it collected from Macy's.
The higher the credit risk of the customer, the less a factoring company will pay a supplier for its due invoice, since the risk is greater to the factoring company that it will not be able to collect the amount due on the invoice.
The agreements essentially allow online lenders to purchase the unpaid balances of customer accounts from the business. Online lenders typically require that the business have a good credit history. If the business has a history of financial problems - such as a bankruptcy or write off - then it may not qualify under the terms of the factoring agreement. It's important to know what you are agreeing to when you sign up for a factoring agreement - read the fine print!
There are many different types of companies that offer factoring agreements. Most lending marketplaces offer some type of short term cash flow loan products that require no collateral and offer fixed interest rates over a set period of time. Some of the more popular loan products offered by lending marketplaces include: Cash Advances, Line Of Credit, and Credit Card Factoring Agreements. The different types of interest rate and repayment terms vary from one factoring agreement to the next, so it's important to do some research to ensure that you get the best deal.
In order to qualify as a working capital provider on a loan, a business must have the ability to repay the balance in full each month. This ability is called gross billings. Businesses can use invoice factoring to finance their working capital needs. An invoice factoring agreement is designed to provide cash flow financing without needing collateral. Working capital providers make large payments to lenders on a regular basis, which allows the factoring company to immediately pay off any outstanding balance at maturity. Business owners can receive a lump sum payment with the option to receive monthly payments from the factoring company in order to pay off any outstanding balances at agreed terms.
Businesses most commonly use invoice factoring to finance inventory, supplies, and machinery purchases. Businesses can enter into non-recourse factoring agreements with other businesses to obtain immediate cash flow. Non-recourse factoring agreements generally require only a signature and credit card number. These types of agreements often allow the factoring company to purchase invoice debt at a discount and pay off the balance at a specified date. Businesses may be able to negotiate a lower interest rate or credit limit.
Cash flow is important to businesses because it helps them meet their operational expenses and pay down their capital expenditures. A cash flow crisis can cause a business to shut its doors. However, by using invoice factoring, a business can avoid a crippling financial situation. Factoring businesses work closely with borrowers and credit card companies to establish and maintain positive cash flow. Businesses receive the money they need when they are ready to pay it.
Businesses may have difficulty locating the best factoring companies due to the factoring marketplaces require minimal documentation. Business owners should ensure that they enter into an agreement with a reputable lender. Lenders offer attractive rates and terms that make invoice factoring an attractive option for business owners to use. When a business secures a loan through one of the best factoring agreements, they can pay off their debts quickly and easily.
Small businesses can use invoice factoring to eliminate their unpaid invoices and achieve positive cash flow. Business owners should research companies to determine if they are reputable and experienced in helping businesses pay their debts. They can also check with the Better Business Bureau for any negative reports against the company.
Below are factoring companies which operate in the New York area: