Share This Page On Facebook Share This Page On Twitter
finance--directory.com

To Factor or Not to Factor?

Posted on October 3, 2020 by Nestor Villamil

The purchasing of accounts receivable is normally referred to as factoring. Businesses can sell their invoices to companies referred to as factors. But not all companies are acquainted with factoring, historians declare that factoring goes back to the ancient Roman civilization rendering it among the world's oldest ways of finance.

In days gone by, merchants used factoring to stay their trade debts among one another. Fast forward to today's businesses profiles in fact it is apparent that factoring continues to be an extremely viable business tool for businesses all sorts and sizes. Can factoring work with your business? Think about the following benefits:

  • Factoring offers a company with a continuing working capital, thus increasing their cashflow.
  • Factoring does not have any limits, offers quick results and it's really accessible along with flexible.
  • Factoring stimulates growth and will finance expansion without debt.
  • Factoring can increase production and sales.
  • Factoring isn't a lending service, rather it really is regarded as a discounted purchase.
  • Factors usually do not normally charge interest, they simply choose the businesses invoices at a discount and collect a fee. Usually do not confuse the purchasing of invoices as financing. Many small to mid-size companies that obtain a bank loan are often rejected. Banks think about the quantity of assets a business has to be able to secure the loan; Therefore, banks normally need a lot of collateral from the business before they're approved for financing. If so when financing is approved, it could only be considered a small percentage of the firms total accounts receivable.

    Factors will vary, they're not at the mercy of exactly the same guidelines and regulations that banks are. Factors consider the credit history of their customers, not the credit of the business enterprise itself. The purchasing of accounts receivable never creates a debt to the business enterprise it simply gives them the chance to gain access to their future money immediately.