Original face

Understanding "Original Face" in Financial Factoring

When diving into the world of Financial Factoring, you may encounter the term Original Face. Simply put, it refers to the initial value of an invoice or receivable. This is the total amount owed by a customer before any payments are made or credits applied. Knowing the original face value is crucial because this is what a factoring company looks at when determining the amount to advance to the business selling their receivables.

Why "Original Face" Matters

In Financial Factoring, the "Original Face" represents the starting point for all future transactions. It is essential for determining the advance rate, which is the percentage of the original face value that the factoring company will provide as an immediate cash advance. The advance rate can greatly affect your business's cash flow. For example, if the original face value of an invoice is $10,000 and the advance rate is 80%, the business would receive an advance of $8,000.

The Process of Factoring With "Original Face"

Let us break down the process. First, a company sells its invoice with an original face value to a factoring firm. Next, the factoring company provides a percentage of the original face as an advance. Once the factoring company collects payment from the client, it will deduct the advanced amount, fees, and any other associated costs before disbursing the remaining balance back to the seller.

Example of "Original Face" in Action

Imagine your business sells goods to a client and issues an invoice of $20,000. This is the original face value. You need cash more quickly than the payment terms allow, so you turn to a factoring company. They agree to an 85% advance rate and pay you $17,000 upfront. When the client pays in full, the factoring company deducts the $17,000 plus their fees before giving you the remainder.

Conclusion

The concept of Original Face is at the heart of Financial Factoring. Understanding this term can help businesses manage their invoices and cash flow more effectively. It is a critical factor in the relationship between a business and a factoring company, determining how much immediate capital a business can access when selling their receivables.