Contract factoring is a financing option that allows businesses to access cash quickly by selling their accounts receivable to a factoring company. Let’s take a closer look at contract factoring, how it works, what businesses should consider when choosing this financing option, and the benefits of using contract factoring.
What Is Contract Factoring?
Contract factoring, also known as invoice factoring, is a financing method where a business sells its invoices or accounts receivable to a factoring company at a discount in exchange for immediate cash. The factoring company then takes on the responsibility of collecting the payments from the business’s customers.
How Does Contract Factoring Work?
The factoring company will typically advance a percentage of the total value of the invoices, usually between 70% and 90%, to the business. The remaining amount, minus the factoring fee, is paid to the business once the factoring company collects the payments from the customers. The factoring fee is usually a percentage of the invoice value.
What Should Businesses Consider?
Businesses considering contract factoring should take into account the factoring fee, which can range from 1% to 5% or more, as well as the factoring company’s reputation, customer service, and collection practices. They should also consider whether the benefits of accessing cash quickly outweigh the cost of factoring fees.
The Benefits of Using Contract Factoring
Contract factoring can provide many benefits to businesses, including improved cash flow, faster access to cash, the ability to take on larger contracts, and reduced administrative costs.
If you’re a business owner considering contract factoring, contact Dorra Financial Group. Our team of experts can help you navigate the contract factoring process and find the best financing solutions for your business needs. We have years of experience helping businesses improve their cash flow through contract factoring, and we can help you too. Contact us today to learn more about our services and how we can help your business grow.