Most people get into debt every now and then. In fact, businesses get into debt a lot and so do countries. No one actually prays to find themselves in such financial situations but it happens. And while most people look at debts with such a negative attitude, there are debts that actually change lives. In the next few minutes, we shall look at debt factoring; a new service that helps businesses get instant cash by selling their accounts receivables.
Debt factoring is not a type of loan per se, but an agreement between a company and the factor to exchange instant cash with inventories. Is there collateral involved? Yeah, but not necessarily the business’s assets. In this agreement, the collateral is the account receivables and the reputation of the payer themselves. Factoring helps a business get some extra loans to finance payments and other projects over a short period as you wait the next payment period. A lot has been said about debt factoring, but what remains for a fact is that cash received comes with much better terms than bank loans. After all, debt factoring tries to provide financial assistance to businesses that banks have often turned down.
As we had earlier stated, the prospects of your business getting the amount of cash you desire depends on the size and reputation of your company. Interest rates for instance can actually get hiked or lowered depending on how trusted you are in your business circle. To get the best terms, always take your lawyer with you to the negotiation table and try several companies before finally settling on a specific one.
With this kind of financial assistance, a business does not have to sell its assets, strain its resources or get loans with high interest rates to run its operations. And as you probably know, a business that runs smoothly with no hitches has higher chances of succeeding in its niche. There is a down side though. Most businesses new to debt factoring find themselves getting unfavorable terms from factors simply because they don’t have a reputation. Worse still, if you become so reliant on debt factoring you might soon find yourself being controlled by the factors. They may influence the customers you choose as well as some of your business strategies. All in all, this kind of financial assistance is very helpful to small and medium sized businesses whose invoices take long to get processed.