subject: The Facts About Business Factoring As A Loan Alternative [print this page] Business Factoring is defined as the outright sale of a company's accounts receivable to another party known as the factor. They do so without the fear of recourse, so if the accounts are in poor shape, the buyer or factor is the entity that is solely responsible for the financial risk.
Before taking the leap into this kind of financing alternative, however, it's important to research all the various ways in which your small business can get quick access to the capital that is necessary for growth, as factoring is quite costly and contains substantial risks.
The financial risk comes into play when a factor buys a package of debts, but they end up not being able to collect any money from the person who owes the money. This happens quite often, especially given the current state of the economy.
The U. S. Federal Government is one of the biggest organizations to take this risk. They bailed out a number of monetary organizations in 2008 when the stock market dipped radically. They factored the astronomical amounts of debt owed by a number of banks who had failed.
It is the responsibility of the seller to ensure that all customers are aware of the impending takeover and that all of the accounts are ready and available to be switched over to the buyer. The factor will then have the right to decide how much money you will receive as an advance during the sale and the amount that they are going to charge you to loan you the money.
Factoring is also used to keep cash flow moving. If accounts become stale, it is a wise choice to sell those debts before they become toxic to your cash flow. You cannot incur any further debts on top of the ones that you have sold, so it allows you to gather unlimited capitol.
Debt factoring can allow you to buy more competitively in the market as well. With more floating cash at your disposal, you can supply your company with increased inventories and can slash prices to allow more sales, therefore making yourself more money. In desperate economic times, this can mean the difference between keeping your company afloat and having to close your doors.
When you sell your debts you can also continue to draw money from the loans if they still owe money to your business. This can also decrease administration overheads by offering valuable support systems and insurance. Most factors offer an 85 percent upfront payment in good faith that the debts will continue to accrue payment.
For more information on factoring you should also check the Internet to find out if it is a solution that can work to suit the needs of your small business.
