Factoring Demystified
Factoring enables you business to get paid as soon as invoices have been issued. This facility allows the business to get immediate cash on slow paying invoices. It is also known as financing of account receivables as it provides for cashing of future income today.
Today most business transactions are on credit and the period of credit can vary between 30 and 90 days. In such situations the business usually requires cash to meet the working capital requirement. You can opt for a bank overdraft or a personal loan but these usually come with high interest rate and require personal security.
Factoring companies usually advance 90 per cent of your invoice amount having a credit period of 120 day from the date of invoice. Once the customer makes the payment the factoring company will the per cent which they have not paid against the invoice less the charges that you need to pay. The charges will vary depending on the facility chosen and the level of service which the business has opted for. Some factoring companies also offer protection against bad debts for an additional cost.
So if you require urgent cash for your business you don’t have to run to your local bank to get an overdraft or a personal loan. You can instead approach a factoring company which will provide your business with instant cash.