Factoring Flowchart Template

A Factoring Reference Sheet is a document that provides information and guidance on the process of factoring. Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third-party known as a factor, for an immediate cash payment. The reference sheet helps to explain the terms and conditions of factoring and provides instructions and key details for both businesses and factors involved in the process.

The factoring reference sheet is typically filed by the factoring company or the financial institution providing the financing.

FAQ

Q: What is factoring?
A: Factoring is a financial transaction where a company sells its accounts receivable (invoices) to a third party (factor) at a discount.

Q: Why do companies use factoring?
A: Companies use factoring to improve cash flow, access immediate funds, and transfer credit and collection responsibilities.

Q: How does factoring work?
A: A company sells its invoices to a factor who provides an immediate advance up to a certain percentage of the invoice value, then collects payment from the customers. The remaining balance (minus fees) is paid to the company later.

Q: What are the benefits of factoring?
A: Benefits of factoring include improved cash flow, faster access to funds, reduced credit risk, and outsourcing of credit and collection duties.

Q: Who typically uses factoring?
A: Factoring is commonly used by small and medium-sized businesses in various industries, including manufacturing, distribution, and services.

Q: What is recourse factoring?
A: Recourse factoring means the seller (company) is responsible for repurchasing any invoices that the factor is unable to collect payment for.

Q: What is non-recourse factoring?
A: Non-recourse factoring means the factor assumes the credit risk and does not require the seller to repurchase non-collectible invoices.

Q: Are there any drawbacks to factoring?
A: Drawbacks of factoring include higher costs compared to traditional loans, potential loss of customer relationships, and the need to disclose financial information to the factor.