How different are the factoring services from the banks?

How different are the factoring services from the banks

?

Many organizations are moving towards factoring services. Very convenient way of raising funds by selling invoices to a third party, which is off course not your bank. The sold invoice is termed as factor. This is an approach which is completely different from a bank loan system. One of the positive aspects of factoring service is the fact that it can absorb the fluctuations of currency in case the company interested is involved in export services. But it has its down side also; the companies have to sell their invoices for less than their face value. This way they have some losses but the plus point is that they are getting the money much more quickly than they would have done if they had approached the buyer of their goods direct.

Factoring companies help the businesses survive in the most crucial phase when they are having a big financial shortfall. First option which is always preferred over any other means is definitely the banks but in such situations they are least willing. This makes the corporate left with no option than factoring. This system is usually used by a company in a situation when it has insufficient cash balance - the company can't bear the expenses related to the existing commitments or fresh orders or contracts. So, they opt for factoring services which is a very convenient and hassle free way of getting money. It allows the business to maintain an ongoing cash balance which can be utilized any moment.

In bank loan system the credit history and credit worth is checked and then loan is processed, but this factoring method doesn't analyze the debtors worth, simply approve loan on the basis of invoice they sell. Factoring companies are definitely helping the smaller to medium sized organizations in their need but they also have great earnings for sure. Sometimes the companies have to pay some amount more than the usual if your factoring companies manage to recover your receivables in a short period. Well, the fact is that for a better service you need to pay some extra amount.

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