Factoring has emerged as one of the most favorite ways of
providing cash flow to businesses. When businesses have
money they are able pay bills sooner and take advantage of
vendor discounts. In essence, companies can run smoother and
more efficiently with factoring. Factoring is the process of
speeding up cash flow by selling credit worthy Invoices and
Accounts receivables for cash. This cash flow tool has been
around for many years and has evolved into a powerful way for
small business to prosper and compete with big business. As
small business grows, they are able to offer flexible selling
terms to customers. This puts a strain on cash flow and creates
the need for urgent cash. Therefore by factoring invoices, a
business can offer flexible terms with the confidence that they
will have cash for the sale within a short period of time.
There are two types of factoring; Recourse factoring and non
recourse factoring. Recourse factoring allows the factor to go
back to the seller if payment is not received, normally after a 90
day period. The factor reverses the liabilities transfer back to the
creditor during the recourse factoring process. Therefore in
cases where customers default, the seller must buy back the
invoices from the factor. This is the most common type of
factoring the world over. Unlike recourse factoring, non
recourse factoring puts the risk of non payment fully on the
factor should customers fail to pay. The factor cannot seek for
reversal of the liabilities transfer back to the creditor. This
seems the more favorable factoring method for both the seller
and the factor. As for the seller, once he has sold the credit
worthy invoices, the deal is closed and credit risks eliminated.
The factor on the other hand will eliminate risks by buying only
solid credit worthy invoices. This will also enable the factor to
establish and sustain long term business relationships with both
the sellers and credit worthy customers. The cost is usually
higher for this factoring method because the factor assumes
greater risks.
However the best factoring solutions will entirely depend on
how a business feels about its customers. If customers pay
invoices on a regular basis, then recourse factoring will provide
the best solutions with less factoring expenses. Non recourse
factoring will be more suitable if elimination of unreliable credit
customers is the chief aim. As much as it brings along a higher
factoring fee structure, the peace of mind it brings along makes
businesses more willing to pay more and risk less.
Invoice and Accounts receivables factoring therefore, stands out
as a very effective process because it makes it possible for
businesses to offer flexible sales terms to clients. This
increases sales opportunities with credit worthy customers apart
from providing immediate access to cash. Unlike other trading
methods, factoring utilizes the credit quality of customers,
allowing the businesses to gain more working capital than bank
credit lines can normally offer. Factoring also provides
opportunities for collection help by courteous professionals
whenever desired.
If you are seeking an invoice factoring company, then Diversified
Financial Services is the smart choice. Our Financial Consultants are
ready to answer any factoring questions. Call today 800-954-0012.
Thomas McCarthy has designed, developed & implemented financial systems for many years. Thomas was a Factoring customer for over 7 years prior becoming a business owner and webmaster.
Download our FREE EBook "Growing Your Company Without Debt" learn how Invoice Factoring may be right for your company at: http://www.dfsfactoring.com
No comments:
Post a Comment