The term factoring always rings a bell among businessmen and investment ventures. It is the key to an uninterrupted cash flow that helps to maintain the monthly balance sheet of an ongoing venture. An owner of a business may face a monetary crisis at the end of a month while completing payroll of his customers or buying new products. This may happen due to delayed payments from customers as well as contracting companies. This is when the question, “what is factoring” looms the mind of individuals and they knock the doors of an invoice company to reinstate their cash flow.
Factoring: The Basic Know-How – To put it simply, factoring is a form of transaction in which a commercial organization sells its invoices or list of receivable payments to a factoring company. It is a financial intermediary that helps a business venture to make its end meet on balance sheet at the end of a month. A factoring company will pay a certain percentage of the invoice as “cash advance” to the company. While the company uses this cash advance to buy raw materials, make employee payments and perform site maintenance, the factoring company will collect that invoice amount from all concerned clients. At month end, they will pay the balance amount to their client after subtracting their percentage of fees. Cash Advance – When you as an owner or the manager of a company wish to factor your invoice, the factoring company pays you a certain percentage of that amount in loan. This is known as a cash advance and gets delivered to you within 24 to 48 hours. This percentage of loan can vary depending on the sector your company belongs to and relative clauses. In general, this loan percentage varies from 75% to 90%. A business venture can receive this factoring after proper scrutiny and evaluation of every transaction history, creditors list, and similar perspectives. Need for factoring – Often customers tend to delay their payments by a margin of 30 to 60 days. Such delay in payments can make it difficult for your company to trade off the necessary financial goals. A company needs instant payment on invoices to maintain cash flow. This is perhaps the most important reason to factor. Consider this example. Suppose, your business venture averages around $10,000 of receivable invoices every month. However, your balance shows empty columns as your customers shall pay by month’s end. So, you choose to factor. Factoring provides you with a cash advance of 80% on your invoices that sum up to $8,000. This enables you to sanction payrolls and purchase raw materials for the venture. Moreover, since factoring is not a liability, therefore your balance sheet remains clear at month’s end. This saves you from any outstanding amounts as well. Who opts for factoring? Every company that deals in goods and services come across the question,” what is factoring.” It serves as a backbone of such ventures and includes a plethora of industrial sectors such as. a)Freight brokers Freight factoring helps a company to invest more time in transportation jobs rather than waiting for funds. Time is of the essence in freight service, and factoring invoices allow you to pay for fuel charges or driver allowances that help to keep the service moving. b)Distribution & Manufacturing Manufacturing requires a constant flow of raw materials. So, companies in this sector look to factor their invoices in order to maintain a constant capital flow. This helps them to purchase raw materials as well pay off their workers without delay. c)Staff factoring Recruiting new staffs is an investment, and it may take weeks before their combined effort provides ample returns. Staff factoring allows you to balance this investment and as well regulate payrolls. Notable benedictions – To answer the question what is factoring, it is important to take a look at some of the undeniable benefits that this approach offers. Here are some that will grasp your interest.
- Factoring helps to eliminate bad debt by regulating constant monetary supply.
- It helps to sort assets and liabilities of a company.
- It is fast, and you receive payments within 48 hours.
- Helps to ponder on credit decisions.
Therefore, understand what is factoring. If you are new to this business world and are facing similar problems, opt for factoring today and see your business grow in no time.
Contact :
Interstate Capital Corporation P. O. Box 1229 1255 Country Club Road, Suite D New Mexico, 88008 United States 800-422-0766
|