RE: Factoring
If there was considerable risk, the factor would not accept the receivables. Typically, factoring is done to improve cash flow, and to rely on the factor for the credit worthiness of customers. I am in an industry where factoring is the norm. In a nutshell it works like this.
-CPQ submits order to factor.
-Factor approves credit.
-CPQ ships and assigns receivable to factor.
-CPQ may borrow up to 80% of receivable at negotiated rate (some relationship to prime). They don't have to borrow.
-Factor is responsible if customer doesn't pay, unless customer claims defect or some other dispute.
-Upon payment the loan is reduced automatically.
-If customer does not pay within 90 days of due date, factor eats the receivable.
-CPQ will pay a % of the total receivables factored as a fee.
In my small business, we pay 2% over prime for the loan, and a 1% fee.
A company the size of compaq would pay substantially less.
With CPQ's huge cash position and borrowing capability, unless they are getting a superb rate (doubtful that it would be better than com'l paper), it seems the main function of the factor would be for checking the credit worthiness of their customers. |
