Can Factoring Improve My Credit?

Yes, you can potentially improve your credit by factoring your receivables. However, factors are not lenders. It is important to understand that they do not lend you money, and therefore do not impact your credit directly. Factors purchase receivables. By way of explanation, let's look at an example of how factoring works.

Say you perform $1,000 in transportation services for one of your customers. You can then invoice that customer for the $1,000 and your customer is obligated to pay you the money under your customer's normal payment terms. In the trucking industry, you will generally have to wait 30 to 40 days or longer to get paid. Alternatively, you can sell the receivable to a factor that will pay you the $1,000 immediately, less a small factoring fee. The factor then bills your customer, and waits the 30 to 40 days to get paid. In the end, your customer pays the factor the $1,000 originally owed to you. Through this whole process the factor does not lend money or extend credit. So, how does factoring improve your credit?

By factoring your receivables, and having the money available immediately, you are more able to pay on a timely basis other companies who have extended you credit, thereby maintaining better credit relations with your other creditors. The bottom line result is that your credit is improved because of the increased cash flow you have generated through factoring.

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