Asset Based Factoring - A Beginners Guide

There are few things more exciting, compelling, or time consuming as having a new business trying to get past its first year successfully. Established businesses and new businesses share many things in common, but an established business is less likely to have issues with immediate cash flow. Either way you look at it, asset based factoring is a great way to get working cash flow out of assets immediately instead of tomorrow.

What exactly is asset based factoring? Asset based factoring is a method of selling payable invoices to a factoring company at a loss of the total due on the invoices. Selling those invoices is a great way to get working capital out of payable invoices due in the future.

There are many reasons invoices may be due in the future - accounts to be paid on a regular basis such as weekly or monthly, lines of credit offered, or invoices yet to be sent. All of these reason are just the beginning as to why people have invoices due. If you do a lot of business with debtors paying in the future instead of today, asset based factoring may be for you.

If you find you may benefit from asset based factoring, there are some basic consideration to keep in mind.

Understand The Lingo Understanding the lingo of the factoring industry will insure you get the most out of the experience. Knowledge is power. Without knowing what is being said, you and your business are at the mercy of the factoring company.

Rates And Fees The obvious profit for the factoring company comes in the terms you receive. There are rates and fees usually associated with the amount of the invoices. Nevertheless, many factoring companies are starting to offer a set rate no matter how much you receive for the invoices. Of course, this is good because it offers those with a high value of invoices a lower fee; and this is bad because those with a lower value of invoices pay a larger fee. Make sure you know which one you are dealing with.

Read The Fine Print As is a necessity for anyone, reading the fine print is extremely important. Just because the person helping you fill out the paperwork is friendly and sociable does not mean they may either forget or neglect to mention important aspects of the transaction. Ask questions if you are unsure of what is meant; if your questions are not answered to your satisfaction, do not do business with that factoring company.

Time Limits Many factoring companies only allow for invoices payable with 2 weeks; some factoring companies allow for invoices payable within 90 days. Make sure to ask.

Liability Ask the factoring company who is liable for invoices not paid by the debtor. There are some factoring companies offering asset based factoring who do not require the business to pay the invoices. Instead, these non recourse factoring terms mean the factoring company will hold the liability of collecting the debt directly from the debtor not your business.