Factoring for Dummies - the Basics
The premise is fairly simple. The business provides a product or service, then bills its customer. The customer then has (on average) 30 days to pay that outstanding invoice, which creates a receivable for the business that provided the product or service. The challenge for the business here is that it has no way of knowing exactly when that money from its customer will come in. Will the customer pay early? On time? Late? Some business owners incentivize early payments by customers by offering a 2% discount when customers pay outstanding invoices within 10 days instead of toward the end of their net 30 agreement. For customers who have the working capital to take advantage of this savings, this is an excellent option because saving money is always a good thing. But most customers don’t take advantage of these discounts, and that’s where a funding business that specializes in factoring comes in.
