What is factoring
This is when an individual trading company gets strategic financial assistance from a factoring company. It gives you access to capital and in some situations takes up the responsibility of collecting delayed customer payments. This is normally done over an agreed period of time.
It is beneficial mostly to companies that work with the provision of goods and services.A great factor firm should offer a great funding packages; this includes good rates and bring down some of the risk you may encounter such as payment problems.
A successful business relies on a constant cash flow. The more it grows, more cash you may need to meet your client’s needs. This is why many growing businesses need some sort of financial assistance. Factoring companies have been able to help such business to keep running.
Benefits of factoring
Factoring helps by providing funds to keep businesses afloat when there are outstanding cash owed to the company.
Types of factoring
Recourse factoring: It is very common amongst the best factoring companies as it is cost effective and easily accessed. The company will be given cash but you will be required to pay up any invoices that go unpaid beyond the agreed time. This reduces some of the risks the factor firm may experience in the process of debt collection.
Nonrecourse factoring: In this type the factor company takes the full responsibility of collecting the funds. It is a bit more expensive and depends on the how reliable the clients will be. This form of factoring may encounter some risks; but some of them are already covered in the fees they charge their clients. Nonrecourse factoring greatly benefits you in lowering your risks of not getting paid.
Debt factoring: This is an association of nonrecourse factoring and debt collecting. The factor provides partial funding due to the uncollected debts.
The full advance factoring: All liabilities on collection of debts remains with the factoring company. It takes up the entire debt collection process minus the discount rate.
Benefits of factoring
Factoring helps by ensuring there is a constant flow of finances in the company. This promotes stability and development. You do not need to wait for payments from clients to run the company.
Factor agencies work a lot of businesses that are not able to get this kind of financial assistance from other forms of funding agencies. All they need to know is that the invoices are legal and clients are credit worthy.
Compared to other funding agencies; factor firms do not take long periods to asses and approve funding. It could take a few days to do this. This helps in cases where there is an urgent need for funds.
Funding conditions such as payment and methods of debt collection from some of the best factoring companies is quite flexible as compared to the other funding agencies. Most of these other funding agencies go for strict timelines that if not complied to may result in penalties.