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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 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.
Factoring is a type of funding that has been existences over millenniums. It is believed to have originated from early international trades. The method was adopted in England in the early 1400s. The pilgrims later introduced it to the US in the 1600s. Financing continues to evolve just like other financial tools.
Companies irrespective of type or size can opt this financing method in order to boost up their cash flow. The funds generated by financing are used by companies to settle inventory costs, employ new staffs, add new equipment, widen their operations and cater for all operational costs.
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 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.
Factoring is a type of funding that has been existences over millenniums. It is believed to have originated from early international trades. The method was adopted in England in the early 1400s. The pilgrims later introduced it to the US in the 1600s. Financing continues to evolve just like other financial tools.
Companies irrespective of type or size can opt this financing method in order to boost up their cash flow. The funds generated by financing are used by companies to settle inventory costs, employ new staffs, add new equipment, widen their operations and cater for all operational costs.
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 Accounts Receivable Funding he recommends you check out www.receivablefactoring.net.
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