Health & Fitness
Factoring: Boon to Business Owners!
The term “Factoring” can be better understood as a non-bank financing of accounts-receivable (or the invoices). It is a monetary operation that involves selling of the receivables in the form of invoice to the factor (i.e. the third party or the debt factoring companies) at a deduction, in order to improvise on cash flow and reduction on bad debt.
Different Approaches of Factoring
Factoring can be either a direct purchase of receivables by the bank or an indirect purchase by a factoring company.
The indirect approach can be again categorized in the following types for both domestic and international trade:
- Classic or Full Service Factoring
- Advance Factoring
- Maturity Factoring
- Finance Factoring
- Discount or Service Plus Factoring
- Disclosed and Undisclosed Factoring
- Recourse and Non-recourse Factoring
- Bulk Factoring
- Invoice Discounting
- Export and Import Factoring
Factoring is beneficial if as a business owner you have the following requirements:
- Speedy enhancement in cashflow
- Reduction in bad debit
- Increased flexibility to access unpaid debits
- Eradicating the prerequisite to process invoices
When to use Invoice Factoring?
The best usage of Invoice Factoring would be in a scenario where a business is firmly executed with rare clashes and inquiries over invoices.
A Scenario:
As a Business Owner, if the most important asset in your balance sheet is sales invoices and you are cognizant of the fact that the rate at which the invoices get converted into cash is pretty slow, then under such circumstances, it is better to use Invoice Factoring which, in turn, would generate cashflow and reduce the administrative costs.
Contemporary Invoice Factoring
Introduction of advanced technologies like Internet has made life easier whether it is the easiness in the accounting burdens or attaining information about the creditworthiness of the debtor. It is also possible for the clients and the factors to collaborate in real time on collections through web.
The basis of modern invoice factoring is still the financial task of proceeding funds to small-scale fast growing companies who in turn sell to large-scale organizations. The third party or the factor never takes the ownership of the goods sold. However, they offer several blends of finance and supportive services when advancing funds. Invoice Factoring providers are able to adapt to a customized industry environment due to the tremendous advancements in IT.
For more information about invoice factoring visit: http://www.sterlingcommercialcredit.com/invoice-factoring.php
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