How Does Factoring Work?

how does factoring work

What is factoring?

Factoring is a transaction where a business sells its invoices to an invoice factoring company to gain access to the cash tied up in outstanding accounts receivables. These invoices or receivables are removed from your books and are added to the factoring company’s balance sheet at their fair value.

The factoring company is purchasing these accounts receivable at a discount rate and then waiting on your customers to pay the invoice, whether that is 30, 60 or 90 days later.

How does invoice factoring work?

Here is an example of how a transaction may work;

Note: All advance rates and discount rates or fees are agreed upon while being set up.

  • Step 1: The business submits their invoices to the factoring company to receive 80% to 95% of the amount of the factored invoices the same or next day. For example, if you sell $100,000 worth of accounts receivables and get a 90% advance, you will receive $90,000.
  • Step 2: The invoice factoring company holds the remaining 10% or $10,000 as security until the payment of the invoice or invoices has been received.
  • Step 3: The factoring company collects payment over the next 30 to 90 day period depending on your clients’ payment terms.
  • Step 4: Once the payment has been received, the factor pays you, (the seller of the invoices), the remaining 10% less the factoring fee, which typically is between 1% and 3% of the total invoice value.

    Invoice Factoring Key Points

    Great For: Business small and large with receivables Eg Staffing, Oil & Gas, Transportation, Manufacturing etc.
    Funding Amount: 10K-25 Million Dollar Lines
    Advance Rate: 80-95%
    Discount Rate: 0.3% - 4%
    Years in business No requirement! (We have funded many great startups)
    Qualifications: Creditworth customers and invoice B2B or B2G customers
    Repayment Terms: Client pays to factor on terms. Typically 30-90 days.
    Application Process Easy and Online, E-sign enabled

    How do I get funded by a factoring company?

    Here are the 4 main steps.

    1. Quickly Sign Up – Just provide your full name, email and create a password.

    2. Apply & Submit Info – Fill out and upload some basic information about your business and have a discussion regarding your company with one of our representatives.

    3. Get Back To Work – Get back to doing your job while we get everything set up for you.

    4. Accept & Submit for Funding – Sign our contract and upload invoices for verification and funding

    Why use Meritus Capital for Accounts receivable factoring?

    Meritus has provided billions in funding over the last 19 years in the United States and Canada to hundreds of businesses. Combined with our experience comes great service, the lowest rates, and an easy to use online onboarding process.

    Here are a few details of our invoice factoring program and why we could be the right fit for you.

    Invoice/ Accounts Receivable Factoring Lines

  • 90-95% Advanced Rates
  • Discount rates starting from 0.30-0.59%
  • Funding start-ups to $25MM lines

    The Meritus Capital Difference

  • Easy online application
  • Great personal service
  • No requirement to fund all your invoices
  • Creativity to get the tough ones done

    Experience

  • 19 Years in the factoring industry
  • Over 1 Billion funded to businesses like yours
  • Provided funding lines for companies large and small
  • Personnel across the U.S and Canada
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