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Factoring Agents: Everything You Need to Know

Factoring Agents: Everything You Need to Know

The key element of a successful business is making sure that the finances balance, leaving you with more at the end of the month than you spent throughout the month. Whether you provide services or products to customers, profits are crucial to keeping your company afloat. But if your payment options allow customers to pay over time, then you can wind up with an imbalance from month to month. For instance, if your customer has a month to pay his or her bill, then you have services that cost you money in one month, but the payment for those services will not come until the following month. So how do you make sure that your business stays afloat?

Factoring agents can make all the difference that your company needs. Factoring agents are a third party company that step into that gap between costs and payments, keeping the money in your company so that your finances balance at the end of each month.

The process is simple. You first send out your bill to the customer with instructions for the customer to pay the factoring agents. Then the factoring agents will pay you a portion of the bill right then and pay another portion when the customer pays them. The process can vary based on the fees that the factoring agents charge, or whether they can charge more on deliquent accounts, but the basic procedure remains the same, making sure that you get money up front and keep your books in balance. 

The factoring agents make money through a small fee on each bill they process. For instance, if the customer owes one hundred dollars, the factoring agents might pay you seventy-five dollars up front, then twenty dollars once the customer pays the bill. The factoring agents keep the remaining five dollars as their fee. Five dollars may not seem like much, but getting those small fees on each transaction across many different companies causes the fees to add up. This way, the factoring agents get a decent wage even while providing you a great service and making sure you get your money.

Sometimes customers decide not to pay their bills, however. Factoring agents can work through those situations, too. At the beginning of the contract with the factoring agents, you can choose whether you want a full recourse or non-recourse agreement. In a full recourse agreement, if a customer fails to pay, then you will have to repay the money that the factoring agents paid you in the beginning for the bill. A non-recourse agreement, on the other hand, allows you to keep the money the factoring agents paid you, but these agreements have much larger fees because of the risk associated with them.

Another benefit of using factoring agents is that you do not have to worry about processing payments and accounts receivable – all of that work is done for you by the factoring agents. This frees you up to focus on other aspects of business.

By using factoring agents, you can make sure that your business stays balanced from month to month with little work or strain on your part.

Photo courtesy of AMagill.

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