Estimated reading time: 3 minutes
For some, it can be difficult to understand the need for factoring. At United Capital Funding, we found it important to provide an example for everyone. Not every company grows at the same rate as each other. You deserve to grow as a company and not fear whether or not you can pay your employees that month. So what can you do about it? Factoring might be the best course of action for your company! Let us show you an example of factoring in finance to see how it all works.
What Is Factoring?
Factoring is simple. When your client owes you money for a service or product, these are accounts receivables (invoices). These outstanding bills need to be paid, but it can take weeks or even months before you get your money. So why not sell these invoices to someone who can get you your money sooner?
And How Does It Relate To Finance?
Finance itself is a special branch of economics. This field concerns itself with the management of money, credit, and investments. Within finance, it’s the job of the employees to find the best deals and management techniques for their business to grow.
With this in mind, how do these two relate? Since factoring is the management of money for the sake of the business, factoring is a perfect road to go down. By using factoring, a company’s growth can rise before they know it.
Our Example Of Factoring In Finance
Now let’s go through an example of factoring in finance so everyone understands:
TechCo has three major clients: MouseTech, MassMedia, and HardSoftware. TechCo regularly supplies these companies with products. However, their payment comes thirty days after each shipment. This doesn’t work well for TechCo, who isn’t growing quickly and needs the money to pay their employees.
Their head of finance then offers the option of selling these outstanding accounts receivable, or factoring them. Without delay, TechCo contacts a factoring company, such as UC Funding, to get the process going.
To begin, TechCo provides us at UC Funding with a copy of their invoices. Once we approve their application, UC Funding provides TechCo with 80% of their invoice within a few days. We now act as the accounts receivable department and services the invoice ourselves. Once the client pays 100% of the invoice, we send the remainder of the invoice to TechCo, and we remove our fees from this.
It’s a simple process! Within days, you have most of the money you’re owed. Never worry about payroll again and grow your business at the same time.
Need Another Example Of Factoring In Finance?
As we are part of a bank, UC Funding provides lower fees when you factor with us. Have a question or two? Feel free to contact us at 866.647.2680 so our specialists can answer any question you have. Are you interested in a free consultation? Visit us here to get started. Having an example of factoring in finance on hand allows you to see just what you’re missing! Contact UC Funding today and get your money today.