What is Factoring?
Factoring insurance is an agreement with a third party company to purchase accounts receivables at a reduced amount of the face value of the invoives. These costs may range from 1% to 10%, based upon a variety of components. Some factoring services will assume the risk of non-payment of the invoices they purchase, while others do not.
When your company utilizes accounts receivable factoring:
- You lose control of your customer relationships in a factoring agreement.
- The factor that owns accounts receivable manages all credit matters involving those customer relationships.
- You have to go through the factor in order to contact a customer.
- These circumstances could harm customer relationships.
- You may not be able to get payment guarantees on sold accounts receivable.
- Any payment guarantees that are available can double factoring fees.
The Difference Between Factoring and Credit Insurance
Credit insurance is a compelling and affordable alternative to accounts receivable factoring. Credit insurance can strengthen both cash flow and strategic decision making.
Insuring accounts receivable with credit insurance:
- Keeps your company connected to your customers.
- Creates more predictable cash flow.
- Allows you to conduct business without interference and with approved credit for your customers.