What is Factoring?
You may be wondering at this point, “What exactly is factoring and how do I know if it’s the right choice for my IT business?”
Factoring, otherwise known as accounts receivable financing, is a form of short term, asset based lending that can provide the answer to slow-paying customers, shortage of working capital, and protection against bad debt losses. Factoring is not a loan, there’s no debt involved, and the funds are not restricted. Let’s take a quick look at how factoring with 1DayFunding works.
An IT company sells their invoice, otherwise known as accounts receivable, to 1DayFunding. Within 24 hours, 1DayFunding pays the IT company up to 70% of the value of the invoice. Then 1DayFunding’s friendly staff handles the collection of the invoice. A simple way to think about factoring is that your business is outsourcing its accounts receivable collections process.
Who Uses Factoring?
IT companies of all sizes from Fortune 500 computer hardware companies to one man operations selling a single software program use factoring due to the quick access to working capital that it provides. Companies can use the cash to grow their business more quickly, pay down debt, fund payroll, increase inventory – really anything the business needs to keep moving and growing.
Let’s take a look at an example of an IT company that can use factoring to grow.
Factoring Helps IT Companies Grow
LMZ Hardware is a medium-sized company that, due to its patented digital communication technology which boosts internet speed, is growing rapidly. Comcast becomes interested in this technology and, after negotiations, purchases 100,000 units.
This is terrific news for LMZ Hardware, but fulfilling such a large order will all but completely bankrupt the company and won’t leave much room for operating costs. Comcast’s payment terms are 30-60 days and waiting 30-60 days for such a large invoice could very well threaten the stability of LMZ Hardware.
Rather than just take their chances, LMZ Hardware turns to 1DayFunding. They sell their Comcast invoice to 1DayFunding and get up to 70% of the total costs within 24 hours. The quick access to working capital helps LMZ Hardware to grow by allowing them to fulfill orders for other companies interested in their digital communications product.
If you have any questions about how factoring works, please feel free to contact us any time.