What are Factoring Services and How Do They Work?

October 9, 2023

Cash flow management is an essential aspect of running a business, and it can make or break a company. Many businesses, especially small ones, struggle to get paid on time by their customers, which often causes a bottleneck in cash flow. That’s where factoring services come in. Factoring services are financial services designed to help businesses improve their cash flow by selling their accounts receivables to a financing company. In this blog post, we’ll discuss what factoring services are and how they work.

All About New York Factoring Services

What is factoring?

Factoring is a type of financing that helps companies get paid faster on their invoices. Companies often have to wait 30, 60, or 90 days to get paid by their customers. Factoring services can provide immediate cash by purchasing the right to collect the payment on an invoice. Factoring companies offer a variety of services, but the basic idea is that they pay upfront for a percentage of the invoice, and they collect the full payment from the customer later on.

How does factoring work?

The process of factoring involves three parties: the company, the customer, and the factoring company.

  • The company first sends an invoice to their customer, who then verifies the invoice and approves it.
  • The factoring company then purchases the right to collect the payment on the invoice, paying the company a percentage of the total amount. This is cash-in-hand for the small business!
  • The factoring company then collects payment from the customer, which pays the full amount to the factoring company.
  • Once the payment is received, the factoring company releases the remaining amount to the company, minus their fees.

What are the benefits of using New York factoring services?

One of the biggest benefits of factoring services is that they provide immediate cash flow. Unlike bank loans, which can take weeks or even months to process, factoring companies can provide instant cash. Factoring also provides a more flexible option for companies that may have difficulty getting approved for traditional loans. Another significant benefit of factoring services is that they take the burden of collecting payments off the company, allowing them to focus on running their business.

What are the types of factoring services?

There are two main types of factoring services: recourse and non-recourse factoring.

  • Recourse factoring means that the company takes on the risk of not receiving payment if the customer doesn't pay the invoice.
  • Non-recourse factoring means that the factoring company assumes the risk of non-payment if the customer fails to pay.

There are also other types of factoring, such as spot factoring, which involves selling a specific invoice, and contract factoring, where the factoring company takes over management of all the company's accounts receivables. These are less common, and typically require a more time-intensive arrangement.

How do I choose a New York factoring company?

When considering a factoring company, it's essential to choose one that specializes in your industry and has a good reputation. You should also look for a factoring company that offers competitive fees and rates and has a transparent process. Most importantly, make sure you understand the terms and conditions of the agreement before signing any contract.

Trust the Experts in New York Factoring Services

Factoring services can provide a valuable solution for businesses struggling with cash flow issues. They offer immediate cash, a more flexible option compared to traditional loans, and can take the burden of collecting payments off of a small business. When selecting a factoring company, it's important to do your research and choose a reputable firm that specializes in your industry. If you're looking for a way to improve your cash flow, factoring services are worth considering.

With competitive rates, multiple fee plans, and industry-leading staff support, BP Financing’s clients trust that their payments will be taken care of. At BP, we understand the unique demands of the factoring market and we tailor our services to each client's unique needs. Don’t wait any longer – reach out today for more information about how BP Financing in New York can help you get paid.