Factoring is a contract by which a credit specialist, called factor, buys the debt held by a supplier (the vendor) on its customers (in the same country or foreign), known as buyers or recipients of services and fee.
The company gives all the invoices that will be collected by the factor. Through Factoring, this company would receive an anticipated amount of money of a percentage of the invoices given to the factoring company. The latter will have the exclusive rights of collection and will handle all accounts receivables.
In return, the factor advances to the seller the amount of receivables sold through the payment of commissions. If unpaid, the risk is insured by the factor which can not be turned against the seller.
These types of services are provided around the world by banks or Factoring companies.
The supplier must obtain the approval of each factor for its customers generally with a maximum per customer.
The factor provides three services: Financing of the client (in advance of delivery of a check); Management of debt recovery (this is the factor which is responsible to recover the amount of invoices); and Guarantee of payment of the latter (if unpaid, the risk is borne by the factor).
Factoring is become very popular amongst small entrepreneurs, because of this reason some of them have decided to set restrictions of the amounts paid when customers do not pay.
Some of the reasons why people use Factoring are:
It is an effective recovery process since the factor takes on a concern of the company for the management of clients and the collection of amounts due. It is a technique for mobilizing the client and whatever the method agreed with the buyer, and the fact that it is a guarantee since the factor undertakes to pay the vendor invoices it has issued. The risk of insolvency of the buyer and the risk of non-payment at maturity is taken by the factor.
We can also note a number of benefits:
First of all, the company saves money when it reduces the costs of the collection process of their accounts receivables.
Factoring allows companies to improve the planning of their income given that they would receive the amount agreed on the accounts receivable regardless of whether the customer pays or not. - 16890
The company gives all the invoices that will be collected by the factor. Through Factoring, this company would receive an anticipated amount of money of a percentage of the invoices given to the factoring company. The latter will have the exclusive rights of collection and will handle all accounts receivables.
In return, the factor advances to the seller the amount of receivables sold through the payment of commissions. If unpaid, the risk is insured by the factor which can not be turned against the seller.
These types of services are provided around the world by banks or Factoring companies.
The supplier must obtain the approval of each factor for its customers generally with a maximum per customer.
The factor provides three services: Financing of the client (in advance of delivery of a check); Management of debt recovery (this is the factor which is responsible to recover the amount of invoices); and Guarantee of payment of the latter (if unpaid, the risk is borne by the factor).
Factoring is become very popular amongst small entrepreneurs, because of this reason some of them have decided to set restrictions of the amounts paid when customers do not pay.
Some of the reasons why people use Factoring are:
It is an effective recovery process since the factor takes on a concern of the company for the management of clients and the collection of amounts due. It is a technique for mobilizing the client and whatever the method agreed with the buyer, and the fact that it is a guarantee since the factor undertakes to pay the vendor invoices it has issued. The risk of insolvency of the buyer and the risk of non-payment at maturity is taken by the factor.
We can also note a number of benefits:
First of all, the company saves money when it reduces the costs of the collection process of their accounts receivables.
Factoring allows companies to improve the planning of their income given that they would receive the amount agreed on the accounts receivable regardless of whether the customer pays or not. - 16890
About the Author:
Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com account receivable financing factoring invoices
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