What Is Factoring? Answering A Common Question From New York City Clients

man pointing at paper on table

What Is Factoring? Answering A Common Question From New York City Clients

Whether you are the owner and operator of a local small business or a CFO at a larger commercial firm, factoring is something that should be on your radar. Sure, almost everyone has heard of factoring and know that it's a financing strategy that helps companies with cash flow issues because of late payments from their clients, but seldom do people actually understand how it can help.

As a capital group in the New York City area, our team, here at the Hedaya Capital Group, understands the unique benefits that a business or commercial venture can stand to gain from factoring. We also understand that someone who has never worked in finance might not be able to immediately understand those benefits. Because of this, we thought we might discuss the basics of factoring and how our factoring services might be able to best benefit your local New York City business.

Continue reading to learn more about our invoice factoring services!

The Issue: Invoice Payment Terms

As a small business or corporation that deals with other entities, you likely have a client payment term that you operate off of. Most companies offer monthly terms, where the client must pay for your services or goods between the first day and the last day of the month. Others, however, might have 30-day, 50-day, or 60-day payment terms with their clients — and if that is the case, it can make cash flow a little bit slower.

Any business or project will only ever see sustainable growth of there is a healthy flow of cash both inward and outward of the venture, so when payment terms are longer the flow of cash can turn into a trickle. Luckily, with invoice factoring, you can get your money when you need it. Just contact a member of our team today to get started.

The Solution: Invoice Factoring With The Hedaya Capital Group

You can’t make important business decisions when your cash flow is interrupted. When you work with our team of accounts receivable factoring professionals, here at the Hedaya Capital Group, you will get the working capital that you need to continue your day-to-day operations and grow at a sustainable rate.

don't impact your cash flow when bringing products into the country

How Does Invoice Factoring Work?

Generally speaking, most invoice factoring companies structure their invoice factoring transactions as a sale of an asset. This means that you are selling your financial rights to the unpaid client invoices to us, the capital group, in exchange for working capital that can be used to pay for important expenses.

When your invoices and accounts receivable are factored, it can be done so in two different installments — the advance and the rebate. The advance will cover around 80% of the invoice amount and is deposited into your business account immediately. The rebate is credited to your business account after the client has paid and covers the remaining 20% and fees. When the rebate is applied the invoice that was factored can be settled.

The invoice factoring process, from start to finish, includes the following steps:

  1. The first step of the process is something that you are already used to — providing the client with the good or service. Once the good or service has been exchanged, the client is indebted to compensate you.
  2. Second, and as usual, you will submit an invoice to your client for the good or service, and any other expenses associated with the exchange.
  3. Next, you will submit a second invoice, this time to your accounts receivable factoring partner.
  4. Upon invoicing the capital group, you will receive the advance that includes 80% of the working capital that you have already billed for and are awaiting compensation for.
  5. Now you wait. Whether you have a 30-day payment term or a 90-day payment term with your client, you will be unable to receive the rebate until your client pays the invoice.
  6. Once the client has paid their invoice, you will receive a 20% rebate for the invoice and the factoring service for that particular invoice can be marked as complete.

Advance Rates

Remember when we said that the advance is 80% and the rebate is 20%? Well, that was just a hypothetical. In fact, that advance rate happens to be pretty close to the average advance rate.

When it comes to factoring, the industry of your small business or commercial venture is considered and evaluated before a factoring rate is established. For some industries, the advance can be as high as 90% of the invoice while others have an advance of 70% or lower.

But why do advance rates fluctuate? As a financial group, the Hedaya Capital Group, we work our hardest to help our clients grow by providing them with working capital through accounts receivable financing and factoring. But we can only do so if we too are growing at a sustainable rate. Because of this, the volatility and structure of our clients’ industries can affect how much of an advance we are able to provide.

Are you curious as to what advance rate we could give to your business or commercial venture? Contact us today!

Types Of Invoice Factoring

When your business or commercial venture factors with a capital group there are generally two plans that you have to choose from — full-recourse factoring and non-recourse factoring. Now, if there is one thing that clients have trouble understanding in regard to factoring it is the difference between these two plans.

Full Recourse Factoring - In full-recourse factoring, the factor has the voice to sell the invoice back to you if your client is unable to pay the maximum 90-day payment term. At that point, it is up to your business or commercial venture to seek out the late payment.

Non-Recourse Financing - Non-recourse plans refer to a factoring plan where the factor cannot sell back the invoice to your company if the reason your invoice has not been paid is credit-related. What can be confusing is the definition of “credit problem” to the factor. For some, it is a late payment, for others, a credit problem refers to bankruptcy. So be sure to ask your factor when discussing your invoice factoring plan.

For More Information On Factoring — Or To Discuss What Factoring Can Do For You — Contact Us Today!

At the Hedaya Capital Group, we understand that not every business venture has the capital assets to satisfy banks when it comes to financing and capital loan applications. Because of this, factoring is the best way for a business to get the assets that it needs to grow at a sustainable rate while minimizing the risk of defaulting on a loan.

If you believe factoring is something that might help your New York City business or commercial venture succeed, we urge you to get in touch with us today.

We look forward to growing with you.

How Can We Help You?