Overfunding

What is Overfunding?

Overfunding occurs when a company receives more money from factor finance than the actual value of its invoices. Factoring, a financial transaction where businesses sell their account receivables to a third party, enables them to access cash quickly. Overfunding is a special feature some factors offer, lending over the invoice value.

The Mechanics of Overfunding

In financial factoring, a business will typically sell their invoices at a discounted rate to a factor. But sometimes, a company might need more money than what the invoices are worth. This is where overfunding comes in handy. The factor provides additional funds which can be a crucial cash flow boost.

Benefits of Overfunding

Getting overfunding can help a business invest in growth opportunities or manage its cash flow more effectively. It's like having a safety net for unforeseen expenses, providing peace of mind for business owners.

Considering Overfunding?

If you're considering overfunding, it's vital to understand the terms and conditions that factor companies set. While it offers immediate financial support, it comes at a cost and with risk. Thoroughly assess your company's ability to repay the funds to make a wise decision.

Overfunding - A Real-World Example

Imagine a company with $100,000 in invoices. They might approach a factor who agrees to give them $80,000 right away. If this company qualifies for overfunding, the factor might lend them an extra $20,000, providing them with $100,000 in hand.