What does the concept of factoring in business finance mean?
This concept involves the sale of commercial accounts receivable invoices to others at a discount. This buyer is also known as a factor. In such an arrangement, this buyer will usually assume to hold the complete responsibility. He will collect the payments and will be liable for any credit losses on the accounts.
Does it make sense to do it?
Factoring in business finance is one of the most common saving money tips. This option is different from normal loans and you do not have to shell money out for commercial loan rates.
This is one of the most useful tools for merchants today. The kind of growth seen with this concept is rarely seen. This is actually the fact in spite of the discount on the receivables.
Well, what is the risk of this concept?
Nothing is ideal and do not accept the first offer you find. Indeed, the largest problem with the merchants is the non-availability of the cash needed for different investments. This would inevitably lead to a problem and, therefore, they have to wait for a long time till they make any profit.
Should this drawback stop you?
Actually, it should not! In fact, some buyers pay the merchants immediately and, therefore, they do not have to wait. Consequently, the merchants are free to invest the cash back into their work. They can use it to invest in raw materials or pay off debt or cover salaries.
Avoid this # 1 mistake that most beginners do!
The quality and value of these services depend on the kind of business your company provides. However many companies that claim to do factoring in business finance are just middle men. They just sell leads and you have to check this quite carefully.
The only thing that these companies end up doing is sending your application to a lot of companies and all you end up receiving nothing but spam emails. They may also introduce you to companies benefit you or companies you would never like to work with.
So, what would be the optimal solution?
From my personal experiences, the optimal solution is recourse factoring. In this method, the buyer does not risk bad debts. In few words, he will be able to get his money back from you in case the customer does not pay up. An agreement needs to be drawn up that specifics the number of days after which advances should be returned.