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Frequently Asked Questions
Explore our Frequently Asked Questions for quick answers. Find information on common queries to make your experience with us seamless and hassle-free.
What is factoring and how does it work?
Factoring is a financial transaction where a business sells its accounts receivable (invoices) to a third party (the factor) at a discount. The factor then collects the payments directly from the business's customers. This provides the business with immediate cash flow, helping to meet short-term financial needs.
Why would a business choose factoring over other financing options?
Businesses may opt for factoring when they need quick access to cash and may not qualify for traditional loans. Factoring provides a faster and more flexible solution, and approval is based more on the creditworthiness of the business's customers than the business itself.
What types of businesses benefit from factoring?
Factoring is commonly used by businesses with cash flow challenges, such as small and medium-sized enterprises (SMEs) or those in industries with long payment cycles. Industries like manufacturing, distribution, and services often find factoring beneficial to manage their working capital effectively.
How is the discount rate determined in factoring?
The discount rate, or fee charged by the factor, is influenced by factors such as the creditworthiness of the business's customers, the volume of invoices being factored, and the terms of the factoring agreement. Typically, the higher the risk perceived by the factor, the higher the discount rate.
Does factoring affect the relationship between a business and its customers?
Generally, factoring is a confidential arrangement, and customers may not be aware that their invoices have been sold to a factor. The business usually continues to manage its customer relationships and collection processes. However, in some cases, the factor may directly collect payments from customers, and this arrangement is known as notification or non-notification factoring.
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