Debt factoring is when a business sells its accounts receivables to a third party. That third party pays the business a percentage of the total amount originally charged to the client and usually takes full responsibility for collecting the payment from the buyer. This transaction allows businesses to get quick access to cash before the clients pay for the goods or services received, allowing them to re-invest that money right away.
How does debt factoring work?
Debt factoring involves three parties: a business, a client, and a debt factoring company.
- A business could be any company that sells goods or services and gives their customers the facility to pay for what they received at a later date.
- The client is the entity or person who bought the product or receives the service, the party that is supposed to complete a payment.
- The debt factoring company is the party who buys the original invoice from the business and collects the payment from the client when the invoice is due. It could be an investor or a financing company.
Usually, immediately after the debt factoring company buys the invoice, it pays the business a major percentage of the original amount due by the client. Then, when the debt factoring company collects the full payment from the client, it releases the remaining percentage of the original amount due by the client, minus a factoring fee.
Debt factoring advantages
The main advantage of debt factoring is that it gives businesses quick access to cash even before their clients pay for the goods or services they have already received. It increases their cash flow and allows them to re-invest that money or simply use it at their convenience.
Another advantage to debt factoring services, is that it can be provided by both traditional financial institutions and debt factoring, invoice factoring, or invoice brokers. While the process through traditional financial institutions (such as banks and insurance companies) tends to be quite lengthy and complicated, working with invoice factoring companies is much easier as most of them don’t require collateral assets.
Debt factoring disadvantages
The factoring fees are definitely the largest disadvantage in debt factoring. While the percentages charged by the factoring companies vary greatly depending on several factors, selling invoices costs money. You can use Velotrade’s invoice factoring calculator to get an idea of the factoring fees depending on the invoice value and the days financed. Actual amounts depend, among other things, on the creditworthiness of the debtor and the length of the commercial relationship.
Debt factoring with Velotrade
Velotrade is the web-based debt factoring solution to provide you with immediate cash flow by selling your outstanding invoices. We provide companies around the world accessible and reasonable ways to financing.
We are regulated by the Securities and Futures Commission of Hong Kong, which maintains and promotes the fairness, efficiency, competitiveness, transparency, and orderliness of the securities and futures industry in Hong Kong.
Velotrade offers all of the advantages and removes the disadvantages when compared to traditional factoring companies. For one, Velotrade’s clients are not locked into a long contract. Second, Velotrade offers flexibility that allows clients to fund only the invoices they want. Third, fees are transparent and straightforward.
This is how you can register to start using Velotrade:
FAQs about joining Velotrade
Q: Who are the businesses Velotrade work with?
A: Velotrade collaborates with companies of all sizes and a variety of industries. You should be a company registered and licensed to operate in Hong Kong or other countries acceptable for the qualifying criteria set by Velotrade. Some of these criteria are verifiable trading history, satisfactory credit standing and total turnover.
Q: Will Velotrade contact my buyers in order to process my application?
A: No, we won’t contact your buyers in application processing. Any contacts, if needed, will obtain your prior approval.
Q: What advance amount will I get?
A: You will generally receive 80% – 90% of the invoice value.
Q: How long does it take to receive the financed amount?
A: Within 1-3 days upon satisfactory verification
Q: Do I have to sell all my invoices?
A: No. You are free to sell the invoices you want to sell when needed.
Q: Who is buying my invoices?
A: Professional investors who come from a variety of industries and backgrounds, thus allowing for a steady and continuous flow of financing in any economic condition.
Q: Is there a lot of admin and paperwork with Velotrade?
A: Velotrade does not require a separate ledger, contrary to the standard factoring facilities. Our sign up and verification process is simple and it is conveniently done online.