In a world where the economy is growing harsher and harsher every day, people have been forced to find ways to stay afloat business wise. There are so many people that are struggling day in day pout with matters cash flow in their businesses. They are finding themselves having to take loans from financial institutions for working capital which are simply increasing their liabilities. Increased liabilities are never a good thing for any company; it presents a very bad balance sheet and this might have the effect of pushing away potential investors and financiers. That being said, how then do businesses stay afloat in this harsh economy?
As a general rule in business, demand crates supply. Once there is a gap to be filled in the market, there are people that come out to fill that gap. In this particular scenario, the matter of factoring came up and this gave rise to a large number of factoring companies. These companies usually have just one goal in mind, to ensure that businesses do not collapse simply because they have debtors that fail to pay their debt in time. These are companies that came into the market to benefit businesses everywhere that are looking to maintain good relationships with their customers by giving them credit.
The principle is usually very clear, in the event that a company has debtors that do not pay their debt in time, it will suffer cash flow problems. This is for the simple fact that money will be going out of the business but no money will be coming in back into the business.
This is where the factoring companies come in. These companies function on a very simple principle. They pay a company its money then claim their money from the company’s debtors. The company will usually give the factoring company its invoices once they are issued to the debtors and the factoring company will pay it once it receives the invoices. Then as soon as the invoice falls due, say maybe after 7 days, on month or so, the factoring company will claim its money from the debtors of the company. This has worked very well across the globe to allow many companies to never have to deal with working capital problems.
Working capital problems are known to drive many businesses to the ground as they usually end up having to take so many overdrafts and short term loans which they have to pay back. The paying back might be a bit hard considering that the business has no money coming in if its debtors are not fulfilling their obligations.