Can I Factor Slow Paying Customers?

Q:  Can I factor my slow paying customers?

A: There are two different views when it comes to what customers you should factor. Your factoring company will have specific terms that they can hold invoices for if they are a recourse factor. Most companies will offer NET 90 terms, meaning your invoice must be paid or offset by 90 days.

Some businesses will factor their slow payers, maybe an account that is NET65, so that they can free up that cash flow that would normally be tied up for at least 65 days. The downside to factoring this slower paying client is that your fee will be calculated on how long the invoice is outstanding.

Example:  You factor a 10k a month client that is NET65 and your fee schedule is a 1% fee for every 10 days.  Your fee on that month would be $700.

Other businesses will factor their more quickly paying accounts. This helps provide immediate cash flow and could help you finance your slow paying customers on your own.

Example:  You factor 10k of NET15 clients with the same fee schedule of 1% for every 10 days. Your fee on that 10k is $200.

You have to look at what your cash flow needs are and make the best decision for your business.

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