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Factoring involves a type of transaction where a firm sells its invoices to a third person, referred to as a factor. This measure is usually taken to ensure a firm is in a position to get cash more quicker than wait for weeks or months for payments to be made. Accounts receivable factoring at times is referred to as A/R financing.
Terms and nature contained in factoring differ in many ways with those of several providers of financial services. These factor firms usually buy your invoices and offer you the desired amount of money in a short time period. The rate that they give is normally at 80% to 95%, depending on repayment history of your creditors, the industry and several other criteria.
You can get a back-office support from a factor. Once the factor collects all your debts, you will be given payments from reserve invoice balances though a fee on collection risk will be deducted. Financing is advantageous because you will not await payments for months making it possible to grow and run your business smoothly. The method used in this funding differs significantly from mainstream loans and does not undertake loans. The provided finances are not restricted and hence give flexibility to companies.
Several reasons exists as to why factoring comes top as a profitable financial tool for majority of businesses. The key advantage is that it gives a quicker boost to flow of cash. Most financial institutions offer cash within a day, and this is something that solves problems on short-term cash flow while ensuring steady business growth.
Factoring is a type of funding that has been existences over millenniums. It is believed to have originated from early international trades. The method was adopted in England in the early 1400s. The pilgrims later introduced it to the US in the 1600s. Financing continues to evolve just like other financial tools.
All companies regardless of their size or type can adopt financing as a method of increasing their cash flow. Firms use the funds that are generated through financing to pay up for inventory, add employees, buy new equipment, expand operations and pay for all other expenses incurred in operating a business.
The amount needed to factor is usually based on uniqueness of the needs of a business. Some firm are known to factor all your invoices, but others factor only for clients who make delayed payments. The capacity of receivables that a company can factor may be between some few thousands and millions each month.
Terms and nature contained in factoring differ in many ways with those of several providers of financial services. These factor firms usually buy your invoices and offer you the desired amount of money in a short time period. The rate that they give is normally at 80% to 95%, depending on repayment history of your creditors, the industry and several other criteria.
You can get a back-office support from a factor. Once the factor collects all your debts, you will be given payments from reserve invoice balances though a fee on collection risk will be deducted. Financing is advantageous because you will not await payments for months making it possible to grow and run your business smoothly. The method used in this funding differs significantly from mainstream loans and does not undertake loans. The provided finances are not restricted and hence give flexibility to companies.
Several reasons exists as to why factoring comes top as a profitable financial tool for majority of businesses. The key advantage is that it gives a quicker boost to flow of cash. Most financial institutions offer cash within a day, and this is something that solves problems on short-term cash flow while ensuring steady business growth.
Factoring is a type of funding that has been existences over millenniums. It is believed to have originated from early international trades. The method was adopted in England in the early 1400s. The pilgrims later introduced it to the US in the 1600s. Financing continues to evolve just like other financial tools.
All companies regardless of their size or type can adopt financing as a method of increasing their cash flow. Firms use the funds that are generated through financing to pay up for inventory, add employees, buy new equipment, expand operations and pay for all other expenses incurred in operating a business.
The amount needed to factor is usually based on uniqueness of the needs of a business. Some firm are known to factor all your invoices, but others factor only for clients who make delayed payments. The capacity of receivables that a company can factor may be between some few thousands and millions each month.
About the Author:
Connor G. Schiffman has 27 years of experience in commercial lending including factoring, asset based lending, and banking. Connor helps readers manuver through all the account receivable options providing practical and useful knowledge to better understand all your lending options. If you want to learn more about Account Receivables Factoring he recommends you check out www.receivablefactoring.net.
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