If you actually understand what is factoring, so it can make a big difference to the way in which you will run your business in the future. This is a pretty common practice that businesses throughout Europe use, but is something that very few business men in America have heard of.
Yet there are thousands of businesses each year that will end up factoring billions of dollars in accounts receivable. The main reason they use this is to help their business grow, to earn a profit and in some cases with the current economic situation to survive.
Just what is factoring?
Through the use of factoring you are able to sell on any accounts receivable you have rather than holding on to them for the 30 to 60 or 90 day period when they will then be paid by your customers. However you are not able to do this on your own and so it is important to employ the services of a good quality factoring company to help you.
However before you do get involved there are a number of things that have to be taken into consideration. In this article we take a look at just what some of these considerations are.
1. If you are involved in a medical or construction business then actually using factoring won't be possible. This is because many of these companies will not factor invoices for such businesses because they prove to be quite volatile.
2. Although quite a few factoring companies are happy to work with you for short periods of time most will tend only want to work with you if you are willing to work with them on long term contracts. So before you go ahead and sign anything make sure that you fully understand the companies requirements with regards to how long you use their services for.
3. You need to be aware that when it comes to this that the funding offered is greatly different from that your bank would offer. When these companies decide whether to buy your accounts receivable they won't be look at how credit worthy you are but how credit worthy your customer is. But because of this the funds that you actually receive from the company won't then appear on your balance sheet. Plus the other reason why people today are choosing factoring is that these companies will make decisions regarding funding in a matter of hours or days rather than in weeks or months that banks decide.
In this article we have provided you with a brief explanation as to what is factoring. For any business especially in the current economic climate that is having problems with cash flow it can provide them instant relief. This in turn reduces the risk of them becoming yet another business that has had to fold.
Yet there are thousands of businesses each year that will end up factoring billions of dollars in accounts receivable. The main reason they use this is to help their business grow, to earn a profit and in some cases with the current economic situation to survive.
Just what is factoring?
Through the use of factoring you are able to sell on any accounts receivable you have rather than holding on to them for the 30 to 60 or 90 day period when they will then be paid by your customers. However you are not able to do this on your own and so it is important to employ the services of a good quality factoring company to help you.
However before you do get involved there are a number of things that have to be taken into consideration. In this article we take a look at just what some of these considerations are.
1. If you are involved in a medical or construction business then actually using factoring won't be possible. This is because many of these companies will not factor invoices for such businesses because they prove to be quite volatile.
2. Although quite a few factoring companies are happy to work with you for short periods of time most will tend only want to work with you if you are willing to work with them on long term contracts. So before you go ahead and sign anything make sure that you fully understand the companies requirements with regards to how long you use their services for.
3. You need to be aware that when it comes to this that the funding offered is greatly different from that your bank would offer. When these companies decide whether to buy your accounts receivable they won't be look at how credit worthy you are but how credit worthy your customer is. But because of this the funds that you actually receive from the company won't then appear on your balance sheet. Plus the other reason why people today are choosing factoring is that these companies will make decisions regarding funding in a matter of hours or days rather than in weeks or months that banks decide.
In this article we have provided you with a brief explanation as to what is factoring. For any business especially in the current economic climate that is having problems with cash flow it can provide them instant relief. This in turn reduces the risk of them becoming yet another business that has had to fold.
About the Author:
Click here to learn more about how factoring and invoice finance can help your business.
No comments:
Post a Comment