Young Professionals Association

Factoring: A Viable Business Financial Tool

Factoring can be seen as a method used by some companies to obtain cash flows when they feel that their current cash reserves are insufficient to meet current requirements. Basically factoring works in the following way:

1. Once the company performs a service for a customer it sends its invoice to a factoring company.

2. After that, the factoring company provides a cash advance on the invoice you provided.

3. The factoring company then goes on to collect the payment when it is due from the customer.

4. Then the factoring company pays back you the rest of the sum, after deducting their fee from the final amount.

Factoring is a viable financial tool which helps provide an immediate boost to your cash flow. In most cases a factoring company will process your payment within 24 hours. This is an excellent option if the one can’t afford to wait till the day the payment is due such as with a small trucking business where a freight factor service can literally save you from going under. A factoring company also provides the added service of offering to evaluate your customer’s payment and credit histories.

Factoring can be seen across all industries such as textiles, manufacturing, oil and gas, trucking etc… Factoring can managed and customized in such a manner that you receive required capital from your associated factoring company when it is necessary. Factoring has the added advantage that the amount provided is not shown as debt on your balance sheet. Also, factoring has no limits attached with respect to amount of financing.

Factoring companies can follow non-recourse factoring where they undertake full responsibility for the collection of payment from the customer once it receives the invoice. In recourse factoring the client is responsible for ensuring that the payment of the invoice is made on time. Factoring companies have a carefully structured fee structure and it is best to ensure that the company is upfront with you regarding these charges.

Copyright © YPNYC Business Organization | All Rights Reserved | Site Map