subject: All About Financing Your Business Venture With Invoice Financing [print this page] Businesses can exchange their accounts receivables for some money at a fee with another person called the factor. This whole process is called factoring. Initially this process was never considered a good source of money for any business but just for those, which were struggling financially. But these days it is one of the acceptable sources of raising money for many businesses. For any business seeking to raise money, it can do so by way of factoring receivables.
A companies accounts receivables are also its finance assets that is why it can be used to raise money. Factoring involves three parties, the seller, debtor and the factor. The obligation to collect the money from the debtor is transferred to the factor that in turn gives the seller the money. The factor will now go a head and collect the money. There is normally a fee charged by the factor for taking up the responsibility of collection.
This process does not consider a firms credit worthiness making it a good source of raising money for a business especially for a business, which may not be credit worthy to a bank, since all that a company requires is its accounts receivables. The other benefit with this process of raising money is that a business does not need to use a security just the accounts receivables.
When businesses need money within a very short time, this process of accounts receivable financing is preferable as there are no long procedures to follow in order to get the money, it can also be a long term process of raising the money as long as one is still in business and still has receivables.
A company seeking to raise money to improve its business base can do that through this process, more so in situations where one does not qualify for a bank loan. This process is also advantageous in that the other business assets are not used as collateral so can still be used later on to raise more money for further expansion.
It also removes the responsibility of collecting the receivables from the business to the factor, which in turn saves the business the administrative costs of collecting, and the time needed to do the collection. Also the risk that the debtors could default on the payments is transferred to the factor. The factor is normally more experienced in collecting debt.
The other good thing is that there is no long-term contract with the factoring company making it a very flexible source of financing, as there are no obligations and responsibilities to the business as a result of this process of raising money. Once the transaction has been done, there is nothing else expected from the business.
