Factoring Canada

Factoring.

Factoring, in corporate finance, is the business of a company (factor) which buys a manufacturer's invoices, at a discount. The factor takes responsibility for collecting the payments due on them.

The process brings cash to the manufacturer, due from the customer, sooner than the terms of the invoice normally allow. Typically, the cost of factoring most invoices is paid in a fee.

These fees range from 1.67%, for each 10 days in the terms (5% for every 30 days), to 8% or even 10%. This is of the principle amount. It is dependent on the relative credit worthiness of the customer, who is the payor on the original invoice. Most factoring businesses limit their transaction amount to no more than $100,000. Generally, there is no set minimum transaction amount. factoring canada

Participants in factoring.

There are usually four parties involved when an invoice is factored:

Seller of the product, or service.

They originates the invoice.
Payor, and recipient, of the invoice (and the associated product and/or service).

They promise to pay the balance due, within set terms (typically anywhere from 10 to 30 days).
Broker.

They are approached by the Seller, who wishes to receive funds ahead of the Payor terms.
Funder.

They provide the actual, hard cash to complete the transaction. Often, the Broker and Funder are the same entity. However Brokers also work with a separate Funder, and take a commission.

Typically, the Funder, as the chief risk-taker in this transaction, receives the Lion's share of the fee. A Broker then receives, as payment, around 10% of the funding fee.

Factor or Collection agency.

A collection agency (e.g. mercantile agent, factor) pursues payments, on debts, owed by individuals or businesses. Some collection agencies operate as agents, of other companies. They collect debts for a fee, or percentage, of the total amount owed. Others work on their own account, purchasing debts from a creditor for less than the dollar amount, of the debt. They then aggressively persuade the debtor to make payments. factoring canada

A creditor sells debts, to a collection agency, to remove them from their accounts receivable records. The difference between the original amount loaned, and the sale price to the collection agency, is written off as a loss.

Factoring canada.

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