Facts about Factoring |
Posted: September 9, 2017 |
To have a smooth business operation, it is important that your cash-flow is stable and keep in mind that handling a growing business should come in a long-term of success. Considering a quick access to factoring it comes with different ways. What does factoring finance mean? This involves selling your receivable accounts in financing companies for an immediate purpose. This kind of tool is typically about the management of your cash-flow, and this is used most often in the business especially if financing is not an option or not available. However, knowing that this has its advantages, it is expected that it also comes with disadvantages in managing the cash-flow. What do you need to know about factoring? As soon as a business is selling a product or a service, this means that it is already establishing a receivable account relationship. In these terms, the client has agreed to pay a certain amount that is either for the goods or services provided. However, when it comes to payment, this does not guarantee the number of working days for the invoice to come through. Moreover, the reality of a growing business needs to have a rolling pay roll to keep the operation constant such as meeting the needs of paying taxes, expenses and more. This is why some of the companies would turn into factoring for them to compensate. Other businesses choose to factor especially if the traditional banks are not available due to some certain issues such as low credit history or lack of establishing rapport with clients. Factoring also involves few other things such as selling of receivable accounts to a more financing organization. Its difference with an invoice setting as this involves borrowing money but against the receivable accounts. By the time you are in the process of invoice transaction, you are agreeing in paying back the loan as soon as you have received your payment from your customer. But with factoring, the company has a legal option to collect invoices from other means of an entity. So, this means that your customer will pay fully to the factoring company. The risk of factoring As mentioned, factoring does also have disadvantages that can put your business to risk. It would most likely go beyond for its higher rates. Perhaps, considering few things before you’re going to decide to enter into factoring such as; There should be a trusting relationship and stability between you and the factoring company- it is important that you can understand how to manage and establish a company. Determine the number of years that the factoring company has been in the business and its background in having a team. Having a good customer relationship keep in mind that while you have a factoring transaction, you are as well transitioning the ownership to an invoice company. So, this means that your customer is paying as well to the creditor. There should be proper communication to avoid any means of misunderstandings.
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