Factoring pertains to a transaction wherein enterprise sells its accounts dues to a third party commercial monetary firm which is also termed as factor. It is essential to note that this is performed so that the enterprise could obtain cash instantly as opposed to waiting for a month or two for a client payment. In addition, this is also known as accounts receivable financing or invoicing factoring. What are the benefits a business can get from a factoring company?
In reality, there are many reasons why factoring is deemed as a very substantial funding tool for a lot of enterprises.
Essentially, it provides a quick boost to your business’ cash flow. In point of fact, several factoring firms provide finances on their client’s accounts dues in just a period of 24 hours. Evidently, this can instantly solve short-range cash flow problems and greatly aid in fueling the expansion of their client’s enterprise. Indeed, factoring firms manages collections from an enterprise’s customers and they may also assess the payment and credit history of their client’s customers. What are the other perks obtained from a factoring company?
- Factoring can be managed as well as customized so that it can provide the required capital when your business requires it.
- It is founded on the quality of a business’ clients’ credit and not your own business or credit history.
- It offers a line of credit that is hinged on sales and not your firm’s net worth.
- It does not have limit when it comes to the amount of funding unlike a traditional loan.
- The funding does not appear on your balance sheet as credit.
What types of firms use factoring?Small or big firms use factoring.
This is regarded as a common business practice among countless of industries these days. In actuality, this comes with a remarkable presence in trucking, staffing agencies, manufacturing, transportation, oilfield services, textiles and lots more. It is worth mentioning that factoring of receivables has long account and at the same time some form of it is actually carried out in various nations globally. How about contract and fee terms?
Please be guided that different factoring firms have various fee structures. Not to mention, some of them impose for an entire factoring fee that is ascertained by the creditworthiness as well as monthly volume of your clients. Meanwhile, other factoring firms have extra charges which cover collateral, shipping, money transfers plus other fees of doing business. So, it is imperative to ensure that the factoring company you do transactions with is transparent and trustworthy in terms of the fees it charges. Also take into consideration that most factoring contracts come with yearly renewal term.