Factoring 101 Blog - Acounts Receivable Factoring and Other Industry News

The Factoring 101 Blog is your one stop destination for all things factoring related. With well over 100 posts dating back to 2011, if you have a question about accounts receivable factoring, purchase order financing, fintech, managing accounts receivable, or anything else, chances are you will find an answer to your question right here on the Factoring 101 Blog. If there is something that you can't find the answer to, or you want more information about it, please feel free to give DSA Factors a call at 773-248-9000 as we are always happy to help you with any questions you may have.

Finding the Lowest Factoring Rate

July 5, 2016

How to Find the Lowest Rate for Accounts Receivable Factoring
There are a lot of different accounts receivable factoring companies out there, and for most businesses looking to factor, the biggest concern is how much factoring will cost them...
Avoid The Pitfalls of Online Lending

Avoid The Pitfalls of Online Lending
Online lending, often referred to as Fintech, is becoming increasingly popular and is a major disruptor in the world of finance...
January 8, 2019

Purchase Order Financing vs Accounts Receivable Factoring

Purchase Order Financing vs Accounts Receivable Factoring
There are many different financing options available to businesses that could use improved cash flow...
May 3, 2017

Finance in the High Tech World

Factoring vs Fintech: Finance in the High Tech World
For most small business owners, obtaining a line of credit from a bank has never been easy...
December 30, 2016

What To Look For in a Factoring Company

December 31, 2018

What To Look For in a Factoring Company
Every accounts receivable factoring company is different, it is important to know the questions you need to ask when looking for the correct factor for your business...
Accounts Receivable Factoring Services

Accounts Receivable Factoring Services
Cash flow is typically the main concern for any company that is looking for accounts receivable factoring...
June 19, 2017

Micro Factoring - Funding Your Small Business

Micro Factoring for Your Small Business
Micro factoring is just like normal accounts receivable factoring, only it is on a smaller scale...
February 7, 2017

fixed rate vs adjustable rate accounts receivable factoring

Fixed Rate vs Adjustable Rate Accounts Receivable Factoring
There are two different types of rates that most factoring companies quote potential clients these days, fixed rate (or flat rate) and adjustable rate...
January 4, 2017

Purchase Order Financing vs Accounts Receivable Factoring

May 3, 2017

Purchase Order Financing vs Accounts Receivable Factoring
PO financing and factoring are considered alternative financing options, as the process is much faster and easier to obtain than a traditional SBA loan from a bank...
Purchase Order Financing and Accounts Receivable Factoring can work together to fund your business.

Factoring and PO Financing: Working Together to Fund Your Business
There are many different ways to fund your business out there, but choosing the correct funding method for your business can sometimes be difficult...
December 4, 2019

A Guide to Purchase Order Financing

A Guide to Purchase Order Financing
Explore the two most popular ways to obtain purchase order financing, from a purchase order financing company and an accounts receivable factoring company...
July 19, 2021

Accounts Receivable Factoring vs Fintech

September 1, 2016

Traditional Factoring vs Fintech
There has been a lot of talk about fintech lately. However, factoring has always been an alternative financing method, and has a long track record of success...
Fintech: Balancing Speed and Availability with Service and Privacy

Fintech: Balancing Speed and Availability with Service and Privacy
Fintech is becoming increasingly popular each year. The success of Fintech is primarily driven by the ease and speed of getting access to funding...
January 15, 2020

Accounts Receivable Factoring vs Supply Chain Financing

Accounts Receivable Factoring vs Supply Chain Finance
With each passing day it seems like a new technology is disrupting a traditional business model...
May 2, 2018

Accounts Receivable Factoring in many ways predates Fintech in the field of financial technology.

How Accounts Receivable Factoring Fits Into the Fintech World
It may seem strange that accounts receivable factoring, a form of financing that dates back further than the Silk Road, could fit into the modern world of Fintech, an industry that is less than a decade old...
May 9, 2017

A Guide to Net Payment Terms

December 18, 2019

A Guide to Net Payment Terms
Net payment terms are when you offer your customers a fixed amount of time to pay you back. Net 30 day terms are the most commonly used payment terms...
Having a good collections process is key to turning your receivables into cash, but that doesn't mean that you need to be doing the collecting.

Collections: Turning Your A/R Into Cash
You've developed a product or service that everyone loves. You've marketed it. You've sold it. Now all you need to do is get paid for it...
December 9, 2019

Nothing is worse than when you sell a product to your customer and then they don't pay you for it. The solution to this problem is to acquire credit insurance.

A Guide to Credit Insurance
For any business owner, there is nothing worse than when you sell a product to your customer and then they don't pay you for it...
January 7, 2020

Just like personal credit for consumers, businesses also have credit that can be used to determine their ability to pay for merchandise and services.

Performing Due Diligence: Credit Checking a Business
In the same way that we have personal credit that determines our ability to make purchases, businesses also have credit that can be used to determine their ability to pay for merchandise and services...
December 31, 2020

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Invoice Financing Should Not be a Loan

There are many different forms of financing, and one form you can use is invoice financing. With invoice financing you are basically getting funded for your receivables before they are due, speeding up your cash flow by 30 days or more. However, while the term financing is oftentimes associated with getting a loan or receiving an advance, with invoice financing it doesn’t need to be. While there are plenty of companies out there who will give loans and advances on your invoices, with accounts receivable factoring you are actually selling your invoices to a factoring company. Let’s take a look at what an advance is and how factoring compares to invoice financing.

What is an Advance?

When you offer a customer net 30 day payment terms you are giving them 30 days to pay for the merchandise you sent them. However, having your money tied up for 30 days in receivables means you have less access to working capital. So what many companies will do is they will borrow against the open receivables by providing an advance. In this scenario, a third party is paying you for the open receivable minus a discount. That third party will hopefully get paid back when your customer pays them for the invoice that they provided an advance on, but if your customer does not pay them back in a specified amount of time, then you will be required to pay them back. Additionally, since the advance is only for 30 days, you may have to pay interest if it takes longer than 30 days for your customer to pay.

How is Factoring Different from an Advance?

With accounts receivable factoring you are still converting your invoices into cash and getting access to working capital 30 days early, however factoring should not be an advance as you are not borrowing money against your receivables. In fact, factoring can be looked at like you are making a sale so long as it is non-recourse factoring. With non-recourse factoring you are actually selling the invoice to your factoring company. Your factoring company isn’t advancing you money, but rather purchasing a “product” from you, in this case that product is an invoice. What non-recourse means is that the invoice is fully insured against non-payment for financial reasons, so if your customer goes bankrupt or out-of-business, your factoring company is out the money, you are under no obligation to pay them back. So with non-recourse factoring you eliminate the need to have additional credit insurance.

In What Other Ways Does Factoring Differ from Invoice Financing?

Besides being a debt-free form of financing, factoring differs from invoice financing in other ways as well. First of all, with factoring, credit decisions are based on the financial strength of your customers as they are ultimately the ones responsible for repaying the factoring company. With invoice financing, certainly the financial strength of your customers is important. However, since you are the one who is ultimately responsible for repaying an invoice financing company if the customer doesn’t pay, your credit is also taken into account with invoice financing. As a result, a factoring company will perform credit checks on all your customers for you as they are the ones assuming the risk if a customer doesn’t pay. An invoice financing company may perform credit checks on your customer, but is probably more concerned with your financial strength than theirs.

With factoring, the amount of funding you can receive is only limited by your sales volume. While a factoring company will assign credit limits to each of your customers based on their credit, no credit limit is assigned to you, so as your business grows, the amount of funding you can receive grows as well. However, with invoice financing, since you are ultimately the one responsible for paying back the funds you receive, a credit limit is assigned to you and you are limited as to how much funding you can receive. Therefore, for a growing business, invoice financing may not be able to support their needs in the long term.

The last major difference is in collections. With factoring, your factoring company will handle all of the collection work. While this might not seem too important if you are already used to making these phone calls, it actually has more benefits than just saving you some time. Factoring companies work with many different vendors, and no doubt some of them will share the same customer base with you. So if a customer decides that they no longer want to carry your product, they may take their time in paying you, or maybe not even pay you at all. However, if they don’t pay a factoring company in a prompt manner, they could be cut off from several other suppliers as a result. Furthermore, factoring companies contribute data to credit reporting agencies, so a failure to pay a factoring company when an invoice is due will show negatively on their credit reports and could prevent them from being able to get net payment terms in the future. With invoice financing, you are still responsible for handling all of the collections yourself and don’t get to benefit from the leverage that factoring companies have over your customers.

Why do Some Factoring Companies Offer an Advance?

There are some factoring companies that do offer “advances”, however in this scenario they are more of a hybrid between factoring and invoice financing. The difference between these factoring companies and companies that offer invoice financing is that these factoring companies will provide you with a few additional services that factoring provides. Most likely they will perform credit checks on your customers, and they also will handle collections for you. However, they will charge you additional interest if a customer takes longer than 30 days to pay, so they may not put much effort into their collections until an account becomes seriously past due. It is also possible that they could be non-recourse, eliminating the need for additional credit insurance. So technically factoring companies that offer an “advance” aren’t giving you a loan, they are purchasing your invoices. However, they are purchasing your invoices for a smaller base fee, and then are charging you an additional fee for the optional advance, so you only get the benefit of improved cash flow if you agree to get charged an additional fee. While it is quite common for the larger factoring companies to offer an “advance”, there are also many smaller factoring companies out there who just pay you for your invoices the same day you invoice your customers.

The benefit of working with a company that just automatically pays you for your invoices is not only that you don’t need to request an advance, but that there is no additional fee for the benefit of improved cash flow. Some factoring companies even offer a flat rate for factoring your invoices, meaning you pay a fixed percent to factor any invoice, regardless of how long it takes your customers to pay your factoring company. Besides knowing exactly how much you will pay and being to build it into your prices, flat rate factoring has another benefit to it as well. Since your factoring company doesn’t make additional money from an invoice getting unpaid for longer, they have more motivation to collect on your invoices in a timely fashion, meaning your customers are less likely to be past due. If your customers aren’t past due, then they will be approved for reorders and you will be able to sell more to them.

How Do I Start Factoring?

It's very simple to start factoring. At DSA Factors we have a very simple two-page application that can even be filled out online. After getting everything filled out, we can usually start funding you in as little as 24-48 hours. We fund you for your invoices the same day you ship to your customers, no need to pay extra for an advance. We offer a flat rate fee structure so you know exactly how much you are going to pay. We also offer non-recourse factoring to all of our wholesale clients. If you have any questions, please feel free to give us a call at 773-248-9000, email us at info@dsafactors.com, or chat with us right here on this web page.

Factoring for the Furniture Industry with a Personal Touch

Factoring for the Furniture Industry with a Personal Touch

April 24, 2023

Over the years, many of the smaller factoring companies have gotten gobbled up by larger the firms, this is especially true in the furniture industry. This morning it was announced that another major player in the furniture industry was bought out by one of the large New York-based factoring firms. However, here at DSA Factors we are still independent and plan to stay that way. We pride ourselves on the personal service that we are able to offer to our clients who we know on a first name basis, something that you can’t expect to get from the big guys in New York...

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The Pros and Cons of Net Payment Terms

The Pros and Cons of Net Payment Terms

January 20, 2023

For anyone who deals in business-to-business (B2B) sales, it is a common fact that customers want net payment terms, and vendors are hesitant to give them. Customers enjoy net payment terms as it gives them more time to pay for merchandise, however vendors can also benefit from net payment terms as offering them can lead to larger and more frequent orders. Let’s take a look at both the pros and cons of offering net payment terms to better understand how they work and how the cons can easily be avoided...

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Survive the Holiday Cash Flow Crunch with Purchase Order Financing

Survive the Holiday Cash Flow Crunch with Purchase Order Financing

December 20, 2022

The run up to the holiday season can be the busiest time of the year for many companies with increased sales volume. At the same time, it could also be the most difficult time of the year to pay your bills and maintain healthy cash flow. This is especially true when you receive a large purchase order from a major retailer. For many companies, accounts receivable factoring allows you to maintain a healthy cash flow and ensure that your bills get paid on time, every time. However, what happens when your sales volume doubles or even triples over a short period of time? In situations like this, purchase order financing may be the solution that you are looking for.

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