Factoring is a concept used in modern business ventures to refer to the action of selling receivable accounts to third party companies who have commercial interests at hand. This is a swifter way for enterprises to acquire finances as compared to the normal payments made by their customers during any transaction activity. This is the reason why knowledge regarding business receivable factoring is important.
Third party companies offering financial assistance during these challenging times are called factors. A factor is driven by profit oriented motives thus the willingness to offer any amounts of cash to enterprises. This firm is also driven by attributes regarding time frames and rates of interests to be associated with the business transaction.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
Factoring funds must not be confused with bank loans at all times because of restrictions dictated by each financial source. These restrictions have higher impacts on bank loans and thus firms are compelled to meet certain conditions. This type of strictness lacks in the factoring process because lenders only require customer invoices for them to disburse funds.
Invoices are very essential in any business process for they depict the amount of money paid by customers after they have received certain goods and services. Most companies use invoices as a tool to regain their money from lending endeavors.
Receivable factoring in business usually takes place within twenty four hours thus a very effective way of raising urgent cash. Cash flows in an enterprise can be amended in the long run and this usually translates to maximum profit making. This financial tool however is invisible on balance sheets because typically, it lacks the typical debt resemblance.
This financial activity began several decades ago as trade was at its budding stages from all around the world. Its need rose as urbanization was taking place because during this phase, more profit oriented enterprises were being built. Increasing consumer needs driven by their tastes and preferences also necessitated this need.
Overall, consumers are entirely comprised of consumers and in business, surplus production of goods meets increasing demands of the same. Most human activities depend on these consumers for profit making hence gradual economic development.
Third party companies offering financial assistance during these challenging times are called factors. A factor is driven by profit oriented motives thus the willingness to offer any amounts of cash to enterprises. This firm is also driven by attributes regarding time frames and rates of interests to be associated with the business transaction.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
Factoring funds must not be confused with bank loans at all times because of restrictions dictated by each financial source. These restrictions have higher impacts on bank loans and thus firms are compelled to meet certain conditions. This type of strictness lacks in the factoring process because lenders only require customer invoices for them to disburse funds.
Invoices are very essential in any business process for they depict the amount of money paid by customers after they have received certain goods and services. Most companies use invoices as a tool to regain their money from lending endeavors.
Receivable factoring in business usually takes place within twenty four hours thus a very effective way of raising urgent cash. Cash flows in an enterprise can be amended in the long run and this usually translates to maximum profit making. This financial tool however is invisible on balance sheets because typically, it lacks the typical debt resemblance.
This financial activity began several decades ago as trade was at its budding stages from all around the world. Its need rose as urbanization was taking place because during this phase, more profit oriented enterprises were being built. Increasing consumer needs driven by their tastes and preferences also necessitated this need.
Overall, consumers are entirely comprised of consumers and in business, surplus production of goods meets increasing demands of the same. Most human activities depend on these consumers for profit making hence gradual economic development.
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 Accounts Receivable Funding he recommends you check out www.receivablefactoring.net.
No comments:
Post a Comment