Factoring is a concept used in modern business ventures to refer to the action of selling receivable accounts to third party companies who have commercial interests at hand. This is a swifter way for enterprises to acquire finances as compared to the normal payments made by their customers during any transaction activity. This is the reason why knowledge regarding business receivable factoring is important.
Third party companies offering financial assistance during these challenging times are called factors. A factor is driven by profit oriented motives thus the willingness to offer any amounts of cash to enterprises. This firm is also driven by attributes regarding time frames and rates of interests to be associated with the business transaction.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
Money obtained by an enterprise from factoring is very different from that obtained from a bank in form of loans. This is brought about by the funding agreements stipulated in both practices. Funds from factors are quite flexible as compared to those gotten from banks on lending occasions. The flexibility can be found in the interest rates and other payment conditions.
Invoices are very essential in any business process for they depict the amount of money paid by customers after they have received certain goods and services. Most companies use invoices as a tool to regain their money from lending endeavors.
It usually takes a maximum of one day for enterprises to receive money from third party sources during times of need. The lesser amount of time it takes for them to receive the cash, the more effective the problem solving process becomes hence efficiency and sustainability in delivery of services and commodities.
Historically, ancient business ventures employed this financial tool to help in fixing cash flow that rose in their daily operations. Most cash flows required urgent attention hence quick funds were to be raised. Industrial and technological revolution also boosted this practice as demands for better goods and services rose worldwide.
All in all, enterprises dedicated to meet public demands are part of the diverse economic activities initiated by man. These ventures may at times require extra funding to boost their service delivery and this is the main reason why factoring is essential in the commercial sector.
Third party companies offering financial assistance during these challenging times are called factors. A factor is driven by profit oriented motives thus the willingness to offer any amounts of cash to enterprises. This firm is also driven by attributes regarding time frames and rates of interests to be associated with the business transaction.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
Money obtained by an enterprise from factoring is very different from that obtained from a bank in form of loans. This is brought about by the funding agreements stipulated in both practices. Funds from factors are quite flexible as compared to those gotten from banks on lending occasions. The flexibility can be found in the interest rates and other payment conditions.
Invoices are very essential in any business process for they depict the amount of money paid by customers after they have received certain goods and services. Most companies use invoices as a tool to regain their money from lending endeavors.
It usually takes a maximum of one day for enterprises to receive money from third party sources during times of need. The lesser amount of time it takes for them to receive the cash, the more effective the problem solving process becomes hence efficiency and sustainability in delivery of services and commodities.
Historically, ancient business ventures employed this financial tool to help in fixing cash flow that rose in their daily operations. Most cash flows required urgent attention hence quick funds were to be raised. Industrial and technological revolution also boosted this practice as demands for better goods and services rose worldwide.
All in all, enterprises dedicated to meet public demands are part of the diverse economic activities initiated by man. These ventures may at times require extra funding to boost their service delivery and this is the main reason why factoring is essential in the commercial sector.
About the Author:
Connor G. Schiffman has 27 years of experience in commercial lending including factoring, asset based lending, and banking. Connor helps readers manuver through all the account receivable options providing practical and useful knowledge to better understand all your lending options. If you want to learn more about Factoring Debts he recommends you check out www.receivablefactoring.net.
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