Factoring is a type of business transaction whereby a firm gets to sell its invoices to a factor (a third party). The main reason that companies take this step is so that they can acquire funding at a more convenient time than wait for months awaiting payments from debtors. A/R financing may also be used to refer to accounts receivable factoring.
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 are various reasons as to why factoring stands out as a valuable financial tool for most businesses. The main benefit is that it provides a quicker boost to cash flows. Majority of the financing firms provide cash within a 24-hour duration. Through this, short-term cash flow hitches are easily solved and the growth of the business is ensured.
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.
Firm can opt for this financial tools to boost their cash flow irrespective of their size or type. The funds provided find useful usage in in settling costs on inventories, employing new staffs, adding modern technology, widening operations and catering for other operational costs.
The total amount that factoring provides is normally dependent on the uniqueness of a business needs. There are firms that are known to factor all the invoices, while other are known to factor only invoices that are to take long. The amount receivable ranges from few thousands to several millions monthly.
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 are various reasons as to why factoring stands out as a valuable financial tool for most businesses. The main benefit is that it provides a quicker boost to cash flows. Majority of the financing firms provide cash within a 24-hour duration. Through this, short-term cash flow hitches are easily solved and the growth of the business is ensured.
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.
Firm can opt for this financial tools to boost their cash flow irrespective of their size or type. The funds provided find useful usage in in settling costs on inventories, employing new staffs, adding modern technology, widening operations and catering for other operational costs.
The total amount that factoring provides is normally dependent on the uniqueness of a business needs. There are firms that are known to factor all the invoices, while other are known to factor only invoices that are to take long. The amount receivable ranges from few thousands to several millions monthly.
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 Loan Against Receivables he recommends you check out www.receivablefactoring.net.
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