Factoring: A friend or foe ?

Factoring has a long and if not entirely honorable, at least “legitimate”, history in business. Especially for smaller or startup businesses who know the technical aspects of their profession very well, but may not be familiar with the niceties of finance (and particularly international finance, which can be a figurative minefield for the unwary), factoring is a legitimate way to sell receivables at a discount to a factor for cash. The factor will then be responsible for chasing down the debtor for the full amount of the receivables, and the discount amount that he paid for the full value of the receivables is his potential profit.

It can cost you the business if you can’t control your accounts receivable yourself.
The factors will “Buy” your A.R. for 70 cents on the dollar or less. So $100,000 A.R. now will return only $70,000. They will likely want to “buy” all your A.R.s so you’ll lose the prompt payments with you aged accounts. You may have one or two accounts with only a few hundred dollars in aged payments that you sell a $30,000 loss. It can make good sense only if you no other way to collect A.R.s—IMHO!