What Is Factoring?
Is Factoring Right for You?
Factoring is a financial transaction in which a business sells its accounts receivable (i.e. invoices) to a third party (called a factor) at a discount. Factoring is also commonly known as accounts receivable factoring, invoice factoring, and sometimes accounts receivable financing. There are three parties directly involved: the factor: who purchases the receivables (us), the client: who sells the receivables (you), and the debtor: who has a financial liability. The use of factoring is helpful by generating immediate cash- allowing you to focus on what your company, not about getting paid.
Factoring helps to remove risks like the hassle of billing and collecting. Partnering with PDM Financial can reduce the stress of dealing with cash flow issues, and can strengthen relationships with customers by simplifying the payment process. Factoring can help you to pay your vendors faster and take advantage of potential discounts and savings.
Improve your cash flow, reduce your headaches, and meet current operating costs without incurring debt with PDM Financial factoring solutions.
The Hidden Value Of Invoice Factoring
Originally written by Brian Straight, managing editor of FreightWaves
For many small companies, the time comes when they can’t handle the business side of the operation themselves. Fortunately, there is plenty of help available, from low-cost software programs that can speed business-side processes, to the other extreme – hiring office personnel to handle tasks such as billing and payroll.
One of the most costly tasks for small companies is chasing down accounts for payment. You’ve handled their load, but now they are dragging their feet paying the bill. That is costing both time and money for the carrier, which is why many smaller fleets and owner-operators turn to factoring companies.
Factoring can help smaller companies solve back-office concerns that are weighing on the financials of their firms, it can improve the management of cash flow ensuring there is always money available for both expected and unexpected expenses, and it can help improve the collectability of debts. Factoring companies will perform credit checks on a carriers’ customer before agreeing to factor the receivable. If the factoring company refuses to factor the account, it’s a sign this could be a problem customer. Carriers may want to rethink working with this customer in these situations.
Factoring is a process where a factoring company “purchases” an invoice at a small discount and the factoring company collects on the debt. There are thousands of companies that deal in factoring, but for those within the transportation industry, it’s usually best to choose one that specializes in trucking. They will know the players, giving them an edge in identifying bad risks, and will understand intricacies in your operation that non-specialized factoring companies will not.
There are generally two types of factoring to choose from – non-recourse and recourse. Non-recourse factoring places the burden of collecting the debt on the factoring company. This lowers the risk for smaller companies that can afford unpaid invoices, but it does come with slightly higher fees. Recourse factoring offers lower fees, but if the factoring company can’t collect the debt, the customer must repay the factoring company.