Factoring is a kind of transaction in which a company sells its receivable, or invoices, to a third party (factor). The aim of taking this measure is to ensure that the business is able to receive cash at a quicker time than wait for a month or two for a client to make payments. Accounts receivable factoring is at times referred to as account receivable financing.
The nature and terms of factoring may differ among several industries and providers of financial services. Majority of the financing firms will buy your invoices and give you money within a very short period. Depending on the credit histories of your customers, the industry and other criteria, the advance rate may range from 80% to 95%.
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.
There is existence of various reasons on why this type of financing stands out as the most favorite funding tool. One of the major advantage is that it provides a boost to cash flows. Majority of financial institutions are likely to give you the loan within a day. With this, it becomes possible to solve short-term hitches on cash flow and ensure a steady growth of your enterprise.
This type of funding has existed over the years. It can traced especially during international trades. England had adopted this funding method as early as the 1400s. By 1600s, the pilgrims introduced it into US. Like other financial tools, factoring has also seen its part of evolution.
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 that you need to factor is dependent on the unique business needs of your company. Some of the firms factor all invoices, while others just factor for those customers who take longer to pay. The volume of receivables a firm may factor ranges from some few thousand dollars to millions a month.
The nature and terms of factoring may differ among several industries and providers of financial services. Majority of the financing firms will buy your invoices and give you money within a very short period. Depending on the credit histories of your customers, the industry and other criteria, the advance rate may range from 80% to 95%.
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.
There is existence of various reasons on why this type of financing stands out as the most favorite funding tool. One of the major advantage is that it provides a boost to cash flows. Majority of financial institutions are likely to give you the loan within a day. With this, it becomes possible to solve short-term hitches on cash flow and ensure a steady growth of your enterprise.
This type of funding has existed over the years. It can traced especially during international trades. England had adopted this funding method as early as the 1400s. By 1600s, the pilgrims introduced it into US. Like other financial tools, factoring has also seen its part of evolution.
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 that you need to factor is dependent on the unique business needs of your company. Some of the firms factor all invoices, while others just factor for those customers who take longer to pay. The volume of receivables a firm may factor ranges from some few thousand dollars to millions a 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 Us Business Funding he recommends you check out www.receivablefactoring.net.
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