In a world full of varying financial solutions, it seems that they all get grouped together. In reality, each option comes with a blend of unique characteristics. At Transfac Capital, our forte is factoring.
What separates factoring from other financial services, such as ACH and SBA loans? This is the question we will be answering through a series of articles, aptly titled “Factoring Facts.” From the ideal clientele to the time it takes to get financed, we intend to answer all of your questions.
Tip 1: Stop Calling it a Loan
The main thing that isolates factoring from other financial solutions is the fact that it is not a loan. Merriam-Webster defines a loan as, “An amount of money that is given to someone for a period of time with a promise that it will be paid back.” Investopedia defines factoring as, “A financial intermediary that purchases receivables from a company.” By comparing the two definitions, it becomes clear that loans and factoring are not one and the same. While a loan will put money in your pocket in exchange for a promise of repayment plus interest, factoring works more as a business transaction with your invoices being the product that is sold.
How Does it Work?
When your company can’t afford to wait for customers to pay their invoices, a factor will offer an advance between 80% – 90% of the receivables. The factor will then take on the responsibility of collecting the invoices. Once the factor has collected the receivables, your business will be given the remaining percentage originally withheld minus the factoring fees. Confused? Maybe the following infographic will help.
If you would like to know more about how factoring can help your business grow, contact us at (888)222-2840. A member of the Transfac team is waiting to answer any question you may have!