Factoring is financing for commercial invoices for goods or services sold to a business or governmental entity. It is useful for sales on an open invoice where the payment terms can be sixty to ninety days. Rather than wait a long time to get paid, Gottesman says, a company may prefer to sell the invoices to Liquid Capital and get a cash advance. This permits the company “to redeploy the cash into the business.” The business gets the balance of the invoice, less the discount fee, when the customer pays the invoice.
Factoring is helpful for early stage companies or for companies that do not yet qualify for bank financing. Factoring works for all kinds of businesses, whether they are selling products or services. Factoring is not limited to domestic customers: Liquid Capital can handle sales to foreign companies as well.
Gottesman points out that “pretty much any company can qualify for factoring” if it has sales to good, credit-worthy customers. And that, Gottesman says, is the big difference between Liquid Capital’s perspective and that of a bank. A bank will look at the credit history of the business, whereas Liquid Capital is concerned with the credit history of a business’s customers. After all, the customers pay the bills.
Setting up a factoring line has some other benefits. For example, Liquid Capital does credit underwriting of a business’s customers so the business knows from the start so a business knows if a customer is creditworthy. And, of course, Liquid Capital collects the invoices, so a business does not have to worry about collections and can instead focus on business.