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Factor Specialization and the Value Add

Companies who specialize in offering factoring services as a way to improve cash flow, often specialize in a particular industry and/or geography. This type of specialization allows them to focus on the myriad intricacies that may be unique to supporting their client's overall financial and growth objectives.

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Factoring Invoice Services: What to Look For

As a potential client searching for a factoring solution provider, there are a couple of ways where specialization in factoring influences terms and conditions. The main variables being the players involved and the magnitude of risk in getting paid. For example;

  • Invoice Selection | Because the factor is taking a calculated risk around collecting the accounts receivable, they will have certain preferences about which invoices they will factor. In short, the stronger your customer's credit and payment history are, the more likely the factor will accept the invoice factoring transaction.
  • Liability | Accounts receivables may be discounted through a factoring relationship with or without any contingent liability. When the factor assumes the full risk that the receivable will ultimately be paid, the transaction is referred to as invoice factoring "without recourse." If your business guarantees that the invoice will ultimately be paid, this is factoring "with recourse." The factoring discount rate is often influenced by which party assumes the payment risk.

Other Factor Services

Specialization also means that the factoring services provider will most likely offer additional services designed to make it more convenient for you to work with them as a one-stop, financial management solution. This can be particularly useful for small firms who may lack the capacity or specialization required in areas such as;

  • Credit Management Services to help your business better evaluate the creditworthiness of a potential new customer.
  • Accounts Receivable (AR) Management where the factor assumes responsibility for managing the AR process including minimizing aging by ensuring collection of funds due in conjunction with the invoice factoring services.
  • Credit Insurance, which offer an additional level of assurance that an invoice or group of invoices will be paid. This form of insurance is different from an "Invoice Guarantee" in that is underwritten by a regulated, third party insurance company.
  • Trade Financing whereby a bank intermediary provides financing to support import/export transactions against pre-established payment terms and conditions, such as defined by a Letter of Credit or international credit insured sale.
  • Equiptment Financing and Leasing where competitive financing conditions are offered to support leasing equipment and/or other resources.
  • Escrow Services designed for international transactions where order payment is held and released by a value-neutral third party once the goods are confirmed to be received by the purchaser in satisfactory condition as predefined and agreed to in writing by the buyer and the seller.
Did you know?

"...that 1st PMFBancorp® has been around for decades and specializes in providing a range of financial solutions tailored to supporting improved cash flow for business clients? This includes competitive invoice factoring, as well as accounts receivable financing, escrow services, trade finance, equipment financing and leasing, credit reporting, and credit insurance. For companies engaged in trade between the U.S. and China, 1st PMFBancorp also offers a Supply Chain Plus Financing℠ Program to help finance, secure and insure imported goods from China and other countries. With a global network of offices through Asia, 1st PMFBancorp assists in Letters of Credit, Onsite Inspections, Production monitoring, Credit Evaluation and Logistics support."

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Other Small Business Working Capital Learning Topics:
Working Capital Know-How | Factoring | Alternative Financing | Increasing Cash Flow | Special Finance Services

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Note: This information has been compiled by the Knowledge Institute for Small Business Development (KISBD) for educational purposes only in order to convey a general overview of the options and related services available to small businesses in the subject areas introduced. Content is provided on an "as is" basis and is not intended to be an exhaustive representation, nor does it provide advice or create a customer relationship between KISBD and its sponsors,, its affiliates and any other organization named herein, and any reader.

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