Factoring is a way to turn your accounts receivable into cash by selling them to a finance company called a factor. Though it can be expensive, it may fuel your growth, improve cash flow, or enable you to take advantage of supplier discounts.
Before you make a decision about whether or not factoring is right for your company, be sure to balance the cost against the potential gain. Make sure you understand the fees you will pay for this service, which typically include the cost of funds and making the collections.
If you decide factoring makes sense for you, do your homework before choosing a factor. Ask your bank or CPA to recommend factors, and then check their references. Visit the Commercial Finance Association Web site, and the International Factoring Association for a list of factors. The CIT Group provides information on factoring (click on "Business Financing," then "Commercial Finance," to access the search feature).