| The process typically works like this:
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| | credit card sales revenue generated in
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| Your company delivers a product or
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| | the company.
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| service and issues an invoice to your
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| | Millions of times a day every business
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| customer. If you offer terms to your
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| | that offers customers charge privileges
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| customers, without factoring, you would
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| | using credit cards is the direct
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| wait 30, 60, or 90+ days for payment.
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| | beneficiary of factoring. American retail
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| With factoring, the factor immediately
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| | business depends on the factoring system,
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| purchases the invoice and advances an
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| | and without it the national economy would
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| initial payment of 70-95 percent of the
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| | be seriously handicapped.
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| invoiced amount. In most cases, the
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| | In this familiar transaction, the issuing
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| business owner will have funds advanced
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| | bank or card company is the factor-using
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| within 24 hours.
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| | the Visa, MasterCard or other
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| When your customer pays the invoice
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| | system-advancing the seller of
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| (payment is made directly to the factor),
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| | merchandise or service cash immediately
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| you'll receive the remaining balance (5
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| | after your purchase, long before you
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| to 30 percent of the invoice amount) less
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| | actually pay. Because the seller gets
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| the factor's fee.
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| | cash up front without having to wait for
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| Factoring is a well-established form of
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| | your payment, his money is not tied up in
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| business financing that produces
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| | receivables.
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| immediate cash payments to a company at
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| | For the double privilege of making credit
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| the time of shipment, delivery and
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| | available to customers and getting
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| invoicing a customer.
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| | immediate payment, the business is
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| In its basic form, factoring has been
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| | willing to pay a discount to the issuing
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| used by American business since Colonial
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| | bank or credit card company-typically two
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| times, and its origins go back even
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| | to four percent of the purchase price.
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| further, literally thousands of years to
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| | Thus for ever $100 of merchandise you buy
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| the early days of commerce.
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| | with a credit card, the seller gets $96
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| Perhaps the most attractive aspect of
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| | or $98 in immediate cash.
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| contemporary factoring is a continuous
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| | Factoring accomplishes the same for
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| level of cash flow into the bank account
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| | commercial-or business to
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| of the business, allowing for business
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| | business-transactions. When you extend
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| planning and operation in a timely and
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| | credit to a customer, you are essentially
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| efficient manner.
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| | becoming that customer's part-time
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| The factoring system also means available
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| | banker. For the period credit is extended
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| financing which automatically adjusts to
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| | to Customer Smith-30 or 60 days-you
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| sales departments sales activity and the
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| | become his lender, and he your borrower.
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| company's unique rate of business growth,
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| | For the length of time credit is extended
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| because increased cash is triggered by
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| | you lose the value of that tied-up money
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| new invoices. Factoring is the only
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| | because you can only anticipate payment.
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| finance mechanism directly linked to a
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| | If Mr. Smith had paid cash, you could
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| company's sales results. The greater the
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| | have invested that money immediately,
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| sales revenue, the larger the amount of
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| | earning interest on it rather than having
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| invoices that can be factored.
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| | to wait. When Smith pays late, your cost
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| The greater the sales activity
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| | increases still further.
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| (invoices), the larger the advance on
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| | Since there is no "free lunch" in
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| those invoices. As such, companies that
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| | business, someone has to pay the costs of
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| are in a growth mode will benefit greatly
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| | your extension of credit; either you pay
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| from invoice factoring as it allows the
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| | by reduced profits, or your other
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| company to unlock revenues that are tied
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| | customers are forced to pay higher
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| up in receivables.
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| | prices. In a marginal company, excessive
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| Factoring is used more than all other
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| | credit extension and late customer
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| types of business financing combined.
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| | receivables can spell disaster.
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| Many of America's major companies are
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| | Invoice factoring is off-balance-sheet
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| enthusiastic users of this finance system
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| | financing so it does not add burden to
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| and have been for years.
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| | the financials of the company. The
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| But factoring is not an exclusive
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| | decision to factor is not based on the
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| prerogative of commercial and industrial
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| | personal credit of the owners of the
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| giants. In fact, factoring comes a lot
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| | business. Instead, the factoring
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| closer to you personally than just
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| | decision is based on the credit
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| through big-name business whose products
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| | worthiness of that businesses client
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| you know and use.
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| | base. This is particularly important to
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| American consumers take part in a common
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| | start-up companies that have been in
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| form of factoring every time they use a
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| | business less than two years... and
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| credit card. There are 1.15 billion
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| | considered nonbankable by most banking
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| credit cards in circulation, 10 each for
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| | instituions.
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| every American cardholder. In 1970 the
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| | Small to medium size business owners who
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| average balance on individual cards was
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| | are experiencing cashflow problems would
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| $649, increasing in 1986 to $1,472, and
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| | do well to consider invoice factoring as
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| today it is over $4,800. Yes, there is a
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| | a means to accelerate cashflow and unlock
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| form of credit card receivables financing
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| | cash that is tied up in receivables.
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| that is based on the projected future
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