Are you looking to earn interest by providing factoring services to startups with a reputed customer base?
Factoring is a financial arrangement in which a business sells its accounts receivables to a third party at a discount, for the purpose of raising funds. These services are provided by Factoring Companies which include financial institutions such as banks, asset management firms, NBFCs, etc.
In a factoring arrangement, a company sells its trade receivables to the factoring company, which advances 70 - 80% of the invoice amount immediately. On receipt of payment from the end customers, it forwards the remaining amount after charging interest to the company. The interest rate charged is higher than conventional lending rate, and typically ranges from 1% to 5% for a 3 month receivable.
Factoring is considered one of the oldest forms of financing and is extremely helpful to small and medium sized enterprises, especially to startups. It is one of the most viable cash management tools available to them. Startups often fail to secure traditional bank funding owing to lack of strong balance sheet, inability to provide acceptable collateral, etc. In such situations, factoring can prove to be a flexible working capital solution, by providing startups the cash necessary to operate, expand and grow.
Startups resort to factoring due to a number of reasons. Factoring Companies do not consider the length of the time for which a business has been in operation or the company's credit rating; they are more interested in the outstanding receivables and the credit rating of the client's customer base. They do not require any additional collateral, and startups can receive funds rather quickly. Moreover, the funding available grows with the growth in sales. Also, in case of non-recourse factoring, the factoring company assumes responsibility for all bad debts.
- Identifying startup companies that have existing customers with a good credit rating
- Determining the fee or interest rate to be charged, after analyzing the risk profile of the receivables
- Reducing the risks of bad debts, especially in case of non-recourse factoring
- Providing a huge database of viable startup companies looking for funding by means of factoring
- Conducting due diligence and filtering companies on the basis of credit rating of their customers
- Formulating the rate of interest or fees to be charged, depending on the credit rating and credit history of customers of the startup firms
- Minimization of default risk by funding the most authentic and feasible startups
- Access to a secured platform for negotiating deals with interested companies
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