Receivables
Factoring Explained
Accounts
Receivable Factoring also known as factoring, is the sale
of invoices at a discount. It is simply a method of financing
that is used by businesses to raise capital quickly and
improve cash flow without going into debt. What is so
nice about receivable financing is that you do not have
to wait long periods in order to get paid so that you
can pay your suppliers and employees on time. Most businesses
cannot afford to wait 30, 60, or 90 days to collect payment
because this cash crunch prevents them from generating
new sales.
When
a business delivers goods and services to an Account Debtor
(Customer) an invoice is created. The business can turn
around and sell this Invoice at a discount to a Factoring
Company. Normally invoices carry net 30 terms, but in
reality customers pay in the net 45 - 60 range. If customers
continue this practice of stretching your payment terms,
it becomes very hard to cash flow and grow your business.
Factoring allows you to take control of your business
and not be at the mercy of your customers.