subject: What Is Invoice Factoring? [print this page] As far as financial transactions go, factoring is one of the lesser known by Mr. Joe Soap. It is also known as Accounts Receivable financing. In this transaction, a business sells its invoices to a third party referred to as a factor. This sale is performed at a discounted rate of the original account. To acquire this the company gets cash which it can use to pay for employees or suppliers. Some businesses will even use this to buy new machinery or equipment. This method allows businesses to invest in further growth and expansion. The interest in factoring has rapidly grown in recent years, specifically the area of Invoice Factoring.
Factoring has been part of the business world for hundreds of years. It originated in England during the early fifteen hundreds, and was brought over to America through the pilgrims in the late sixteen hundreds. These days there's also a much larger quantity of Factoring Firms that specialize in this discipline. Even though processes and intricacies have changed since the early years, the main concept and benefits remain the same. It still remains the most beneficial to small, fast growing companies, who sell goods to large and reputable organizations.
A Factoring Company can also provide some key services and support for their clients: 1.They can provide financial details about prospective customers, which could reduce the risk. 2. They can also keep up with the history of the payments made by customers. 3. They can provide daily management reports with information about collections. 4. They are able to make the calls requesting payments. This effectively implies that the whole credit department of a small business is outsourced. There is therefore no need for highly paid staff, who have to be been trained in accounts receiving. Today increasingly more larger firms will also be outsourcing these back-office functions. These services offer protection for the small business owner against any liquidity crisis. Factoring spares sound companies from the pitfalls and hassle of bankruptcy protection for customers, suppliers and employees. As i've already explained, it can provide quick funding for companies who are going through restructuring and want cash to expand and grow.
There's also other scenarios where factoring can certainly help provide cash quickly.
When your customers pay in 30 to sixty days, and you want to get paid sooner. A large amount of growing businesses can't afford to wait that long because they have employees and suppliers to pay for. Raising funds to fulfil these commitments can be tricky.
When you don't have the necessary liquidity inside your business, factoring can offer cash which may be used to take advantage of early payment discounts offered by a lot of suppliers.
If youre a business owner, Factoring does not just have to be temporary answer to your money flow problems. It's really a viable long term money management solution. For more information on how to increase liquidity inside your business go to http://www.factorking.com.
