Factoring a Company- A profitable Deal

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To avoid the cash flow issues from customers in a company, a factoring company assists in financing the invoices. They do not offer money. Companies are buying the accounts receivable process from the trades at a low cost and the clients get cash for their daily needs. The factoring company process the invoices and get a part of the invoice as profit.

Is a Factoring company right for businesses?

Factoring companies help the organizations or firms with financial assistance and if below conditions are in the current scenario that it is a productive deal:

  1. Whether the customer is a private or government firm, and invoice processing period is greater than 60 days.
  2. If commercial clients have good credit.
  3. Slow payments are the major cause of cash flow issues leads to problems in daily operations.

Taking help from factors are favorable for the company if anyone the above point is true.

Factors to consider while selecting a factoring company:

  1. Specialization: Many organizations are claimed that they are experts for different businesses, but it may not be true. Most factoring companies are specialized in a few fields and to check these factors, the previous project done by the factor can help.
  2. Costing: Always careful about the hidden charges applied to the services taken from factors. This industry is modest and there is a minor variation in the prices. All the costs included in the process should be transparent and discussed with the client.
  3. Experience: Cash flow is a major process for any firm, only an experience factor can handle the entire process efficiently. If a factoring company working from years in the business, then they can suggest better solutions to improve the cash flow.
  4. Process time: Mainly, the factoring company will create the account, validate the documents and prepare the contract of services within 3 to 5 days, and can start working with a week. Fast processing time can save time and energy.

How does factoring work?

  1. The client will give the service to the customer and send the invoice to the factoring company.
  2. A cash advance will be provided by the factoring company to the client within the stipulated time of 1 day.
  3. Factoring company process the invoice and get the entire amount from the customer.
  4. The factoring company will transfer the invoice amount to the client with a deduction of a small amount.

Advantages of having a Factoring Company:

  1. Human resource reduction as factors will provide back support and collect all the money on the client’s behalf.
  2. Management of business capital when the client needs it.
  3. It will not work upon the credit history of the client but on the customer’s business history.
  4. No headache of loans.

Costing of the factors may be calculated on different factors which could be the number of bills processed in a month or credit rating of the customers. It may include other overhead charges such as transfer costs, or operational costs.