Factoring: What it is and How it Benefits Your Business
The term business factoring refers to one of the oldest forms of financing in the business world. It allows for a business owner to make a sale.
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They then deliver the product or provide the service that was sold which generates an invoice. The ‘factor’ which is also known as the funding source will purchase the right to collect what is owed on the invoice, less the discount. The ‘factor’ will pay a high percentage of the value immediately and will forward the rest when the customer purchases. Factors are concerned with the customers’ capability to pay as they have sold the invoice. Factors may be more expensive than a traditional loan, but may be one of the only options for someone who does not qualify for a bank loan.
Factors often provide many services that a bank typically wouldn’t, including accounting work, credit checks, financial reporting and more. Factoring can help a company to get the funding that they need based on the financial soundness of their customers. This allows a company that is just starting out to get the funding that they need, even though they may not have the credit and reputation that a bank requires for a loan. Business factoring is often done by businesses that are experiencing rapid growth. Businesses and companies that regularly generate commercial invoices may want to use business factoring to reduce the time for outstanding receivables. Factoring can also provide a company with the cash it needs to fund growth in a variety of areas. A business can find factors by looking online and in industry trade magazines, flyers and other publications. Banks and other financial institutions may also provide a business with the information of available factors.
Factoring is viewed as a short-term solution. It can help companies to be able to qualify for traditional financing. Finding a factor that understands the specific industry and needs of your business can be very beneficial. This way the factor will be aligned with your specific goals and will be able to create a customized factoring service package for you to ensure that you have the appropriate financial resources available. Factoring allows for money to be available quickly, rather than having to wait the normal terms of 30 to 60 days for their payment. Through the use of a factoring firm, a business can have money ready to use in as little as one or two days. Keep in mind that factoring typically costs more than conventional lending, but the factors also assume the role of billing and collecting debts. Factors can be a benefit for companies that are doing business worldwide.
Benefits of Factoring
There are many benefits that factoring can provide for your company. You may not have been approved for a bank loan, or you may require more funding than your bank loan was approved for. Factoring can be utilized by businesses of any size and at any stage. Some of the main benefits of factoring include:
- Unlimited funding potential
- No debt to repay
- Fast approval
- Credit protection
- Collection services
Factoring may be the right option for your business depending on your needs. Factoring can allow you to have the funding you need allowing your company to grow.
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