The Value of a Factor

The purpose and goal of a factoring arrangement is simple: Improve cash flows. That is the primary value that a factor provides to their clients. However, a factor’s value does not start and end with simply providing financing.  The factor assumes a host of responsibilities that are inherent and unique to this variety of financing.

The first of which is taking over the collections on payments due to the client. This does not necessarily have to be all of the payments due to the client, factoring arrangements can differ in their terms, but the factor will handle all of the payments that are assigned to them. This provides value because the payments that the factor handles are payments that the client does not have to manage, affectively outsourcing that job to the factor.

This does not mean that the factor will just sit back and collect the checks. They will be actively involved in the collections process. This includes checking up on payment that is overdue, helping resolve disputes and adjustments, and processing payment into their records once the payment is made.

Factors also act as an outsourced accounts receivables management and bookkeeping department. Because the factor will be dealing with the payment of invoices directly, they will assume the responsibility of accounting for the payment receipts. They will report the receipts to the client as they come and forward these reports to the cleint. This is done so that the client can keep up to date records and so they can make sure there were no errors.  As well the factor will keep track of the invoices that are still outstanding, how long they have been outstanding and how much money in total is outstanding.

Lastly factors will do a credit check on all of the client’s customers. This provides valuable insight to the organizations that our clients are trusting to pay them. Default on payment for the goods or services that a client provides one of their customers is a situation no businesses wants to be in. Credit checks help minimize and manage this risk more intelligently. Further more, credit checks are likely something that the average business does not have easy access to, and thus are not something that they could easily do on their own.

These services, that are inherent to any factoring arrangement, provide extra value to our clients, particularly those that operate smaller businesses and do not have dedicated staff for accounts receivables, collections and bookkeeping. This is why factoring can be a powerful tool for small businesses; it frees up some of their precious time to focus on their core business rather than the day-to-day operational tasks.  Not only does it do all of the things listed above but it also provides businesses with working capital that they may not have access to through traditional avenues, especially in the case of the small business.