Thu, 18 June 2020
Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.
Equity funding is just one source of funding for your startup. There are many others such as factoring.
Factoring is selling your accounts receivables to a finance company at a discounted rate.
It’s not a loan, so you are not taking on debt but rather selling your invoices for cash, albeit at a discount.
A typical factoring arrangement gives the business 85% of the value of the invoices and keeps 15%.
The factoring company often charges a processing fee and a fee for however many days it takes the customer to pay the invoice.
These two costs add up to be the discount the business is paying for the receipt of cash.
Factoring works well for the company as it comes with long payment terms.
Businesses with a cash flow shortage often use factoring as it’s a fast way to access capital without taking on debt.
The factoring company will look at the credit history of the customer paying the invoice rather than the startup providing the product.
The cost is giving up a portion of the profits which makes fast cash expensive.
Your customers will know you are factoring, as the invoice will be retitled into the name of the factoring company.
Slow-paying customers will become more expensive as the cost of collecting their payment will take longer.
Factoring works best for short-term cash flow management when you have predictable payments from customers that take some time.
Direct download: EG_Apr_2020_Startup_Funding_Espresso_--_Factoring_2.mp3
Category: -- posted at: 12:00pm CDT