How can factoring give you immediate working capital, increase sales, and protect you against credit losses? Improve your business with a simply designed service package and solve the problems with selling your products or services on an open account.
Get A Boost In Cashflow
A vast number of international trading enterprises in various industries have proven that benefits are gained by factoring. Amongst them are increased sales, by way of competitive terms and protection against credit losses. In addition to the boost in cash flow, there is improved motivation from available working capital and the potential for taking advantage of preferential supplier discounts!
Many organizations are confronted by a critical cash flow, which arises from various influences. They can relate to seasonal trade fluctuations, or unexpected growth, with unavailable financial resources for a bank loan or line of credit.
How complex is factoring?
Like anything else, once you know the basic principles it becomes easier. The practice of factoring is a simple, devised, and innovative service package. It is designed with the purpose of relieving the inherent challenges associated with a business selling products or services on an open account.
The world of trading is becoming increasingly smaller and with economies tightening their budgets; international factoring is a preferred solution for any organization involved in exporting goods. Of particular interest is that this facility is an obtainable benefit to any enterprise, regardless of its size!
How does it work?
The process begins with contacting an established factoring company. The particular needs of the organization regarding influencing a vibrant and effective cash flow will be determined. This could include the number of customer invoices to be factored; terms and conditions extended to customers and crucially, the agreement with the factoring company.
There is a basic agreement whereby the organization sells its accounts receivable to the factoring company at a negotiated sum, usually without any clause regarding recourse.
In the event of an account debtor becoming bankrupt, or for various reasons cannot pay the outstanding account, the organization will receive payment from the factoring company. When this form of agreement is made between parties in different countries, it then becomes known as international factoring.
Seller benefits and protection
The process of factoring protects the selling organisation against business accounts being written off and the collection and management of its accounts receivable. Immediate cash finance is provided in accordance with the agreed sum of the receivables outstanding. A usual procedure between a factor company and a selling organization, would involve the reviewing of the creditworthiness of customers and based on this, the credit risk would be determined and the agreement negotiated.
Factoring understanding and influences
As part of the business and financial world, understanding the structure and influences associated with factoring is essential. The value of the accounts receivable is significantly influenced by the credit worthiness of the customers and not that of the business itself, or the owners.
The discount rate will be determined on these influences and by the total monthly sum, intended for factoring by the organization. The criteria is that rates or fees cannot be quoted or guaranteed, without knowledge regarding the business, its customers and the invoice amount subject to factoring.
In certain instances, highly competitive low fees have been advertised to business owners regarding this type of service, which should be treated with extreme caution!
Tips
The financial markets are vast and there is so much to learn especially if you are a business owner. We would highly recommend that you start educating yourself financially, there are so many excellent interactive online financial courses that you can join, some are even free.
That being said, you should make that first step to getting a better knowledge and starting to take control of your finances, business or personal. You can read this great post on Introduction To Investments and How To Buy Stocks For Beginners which will give you an insight to stocks and investments.
