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Financial Questions and Answers

Q: My business has a large number of unpaid invoices. I have been told that I can get rid of them by selling them to a factor. How does factoring work?

A: Factoring simply describes the sale of invoices to a specialized type of financing company known as a factor. In return for your receivables, the factor pays you in cash. Businesses that need access to cash in a hurry often turn to factoring. Once the transaction is completed, the factor is responsible for collecting on your old invoices. If you decide to go this route, just be aware that it is quite expensive. Generally, the factor will take 2% to 6% of your invoice amount as its fee.

Q: I am planning on making a donation to my favorite charity. Is contributing appreciated stock a good way to do so? Or should I sell the stock and donate the proceeds?

A: Both you and your charity likely stand to benefit more from a gift of appreciated stock. Assuming you’ve held your shares for more than one year, you may be able to deduct their full market value (for both regular income tax and alternative minimum tax purposes, subject to limitations). The charity will receive the full market value of your gift. If you sell the stock and donate the net proceeds, on the other hand, capital gains tax may reduce the amount you have available for your charitable gift — and your potential tax deduction.

March 2017 Newsletter Previous Article