What is Factoring?
Factoring is the sale of accounts receivable or invoices at a small discount to obtain immediate cash. Factoring gives businesses the ability to ensure growth without diluting equity or incurring debt. Factoring is one of the oldest forms of commercial finance and is used extensively both nationally and internationally. Factoring is NOT a loan. No money is loaned and no interest is paid or earned. Instead, the factor receives a fee for its services. Those fees are based on the dollar amount of the accounts receivable purchased.
Mike Semanco, President, Hennessey Capital, explains factoring.
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A main difference between factoring and a bank loan is in factoring a company uses its customers’ credit strength, not its own as support for funding. With a bank loan, credit is typically based on its assets, equity, profitability, cash flow and liquidity, thereby limiting the amount of funding. Under a factoring facility available funding is limited only by the amount of a company’s receivables, which allows it to meet operating demand and provide for future expansion.
The Facts on Factoring
Hennessey Capital offers:
- Up to 90% advance on eligible A/R
- Recourse or non-recourse facilities
- Facility size is based on credit strength of financed customers
- Ideal for service, manufacturing, and distribution-based industries
- Can be used in conjunction with current bank lines
- Includes customer credit review and invoice collection services
- Online reporting