Factoring Case - Why Do Companies Use Factoring Services?

Factoring

Factoring is one of the oldest forms of business financing. Factoring is the cash-management tool of choice for many companies. It is an alternative procedure is to sell the receivables at a discount to a financial institution be identified as a factor and let it collect the money. It offers businesses a flexible means of growth by allowing them to make maximum use of their assets; which in this case is invoice. That is to say some companies selling or borrowing the strength of their current assets to figure out their financing problem. It means the factor will shoulder the responsibility to collect the invoice or accounts once the firm has sold its receivables. Factor act as administers collection of receivables, bear responsibility for bad debts and help to provides finance. Factor will advances most of the invoiced amount to the company immediately and the balance upon receipt of funds from the invoiced party. Factoring is not a loan but the purchase of financial assets. The emphasis of factoring is on the value of the receivables, whereas a bank focuses more on the value of the borrower's total assets, such as inventory and real property. In additional, factoring is a short-term solution, most of the company factor for two years or less.

Why do companies use Factoring services?

All companies in the world has cash flow problem, mostly they don't receive the cash from customers on time. A lot business owners use these services because they are experiencing rapid growth and need cost of the business. They also want to acquire immediate cash to it business use without the existence of debt. Besides, they do want a larger business by expanding their line. It's also used to avoid seasonal cash flow crunches. Business credit rating is very important, some business use factoring services to improve the business credit rating. They make use of short-term cash as a bridge loan by using factoring services. Next, they wish to enjoy the benefit from trade discounts. In others hand, they used because need to make tax payment in time.

Who uses Factoring services?

Factoring services is helpful for any company wish to entrust to specialist the management and control its credit portfolio. Therefore, many types of business can benefit from the advantages from factoring. The need for factoring exists when it is an imbalance among the company's commercial credit policy requirements and the resources which the company can independently have available. Factoring is especially well suited to companies which are growth rapidly. In other words, fast growing companies need a lot of working capital and factoring assist to provide this cash immediately efficiently so they won't get into trouble by customer late payment. Factoring is available for companies that sell or plan to sell on open