Account Receivables Factoring: What It Can Mean For Your Business
At one time or another most businesses experience cashflow problems. This may be caused by bad debt, bad planning or a contingency that simply hadn't been allowed for. Accounts receivables factoring can be a solution that provides almost immediate cash for the business. An account receivable factoring company, such as (removed), will work with client companies to help with accounts receivable funding. In essence this involves selling payments that are due at a future date for cash that can be paid immediately. Of course, the full amount of the invoice cannot be paid. The factoring company will levy a charge or a commission on the transaction - they are in business to make money too.Factoring is considered on current debts. It is a different process from the sale of bad debts which has been covered elsewhere on this site.
Some businesses fear that factoring their business invoices will send out the wrong message to their customers; that it will indicate a level of business instability that could cause customers to lose confidence. And, arguably, this is a valid concern. However, when a company is facing a cash crisis it is surely a better option than to see the company fail completely or be forced to enter into an expensive borrowing arrangement that may even involve personal guarantees.
Over the years account receivables funding has become more acceptable in business and tends not to cause the raised eyebrows that it may once have done. Most businesses understand that there are times when the cash position is just not as the business manager may have hoped and desperate times lead to desperate measures. An advantage of factoring is that the account receivable factoring company will usually manage the collections process for the creditor, which represents a saving in time and effort. Also, most debtors will pay a third party in a more timely manner than they might if they were dealing with the supplier direct. This all being the case, accounts receivable factoring begins to sound like a win all round.There is of course a business process involving credit checks and debt assessment which must take place before the factored funds can be released to the supplying company - but this can happen very quickly in the computer age. There are alternatives to factoring including the securitisation of accounts receivables which simply means that the accounts receivables balance is offered as security against short term borrowing to ease cashflow problems. No business can afford to shut up shop for a week until they manage to collect payments from debtors. The business, if it is to thrive, must continue to operate and business operations have to be financed. Account receivables financing is just one option available to the business owner when he is facing a cash crisis. |