Profit oriented enterprises are nowadays able to raise money faster to finance their overall operations. This is facilitated by other willing enterprises through a process known as factoring. Typically, business ventures receive money in exchange for goods and services offered to their customers. At times, this cash may delay thus the necessity for enterprises to acquire business receivable factoring services during these challenging occasions.
The third parties that buy these receivable accounts are normally known as factors for they determine the speed in which funds will be acquired. The attributes related to this procedure vary depending on the enterprise seeking to engage in it. There are time limits and interest rates based on the finances obtained by an enterprise.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
There is a major difference between factoring funds and ordinary loans. The contrast is evident through the policies formulated by both funding services. Banks are normally strict on the amount of money, time it should be repaid and the interest rates to be associated. Factors are less strict on these conditions for they provide money only after being assured of the profit making ability of an enterprise.
The lending company ensures that invoices for certain service delivery are provided prior to the factoring process. Advance money is received after a business enterprise has adequately provided the invoices and payments are collected directly from their customers for a specific period of time.
It usually takes a maximum of one day for enterprises to receive money from third party sources during times of need. The lesser amount of time it takes for them to receive the cash, the more effective the problem solving process becomes hence efficiency and sustainability in delivery of services and commodities.
Historically, ancient business ventures employed this financial tool to help in fixing cash flow that rose in their daily operations. Most cash flows required urgent attention hence quick funds were to be raised. Industrial and technological revolution also boosted this practice as demands for better goods and services rose worldwide.
All in all, enterprises dedicated to meet public demands are part of the diverse economic activities initiated by man. These ventures may at times require extra funding to boost their service delivery and this is the main reason why factoring is essential in the commercial sector.
The third parties that buy these receivable accounts are normally known as factors for they determine the speed in which funds will be acquired. The attributes related to this procedure vary depending on the enterprise seeking to engage in it. There are time limits and interest rates based on the finances obtained by an enterprise.
Funds allocated during this process can either be refunded directly or indirectly. Direct modes entail paying exact amount of cash borrowed inclusive of the interests. On the other hand, the indirect ones include the factor accessing funds at intervals through customers who receive certain goods and services.
There is a major difference between factoring funds and ordinary loans. The contrast is evident through the policies formulated by both funding services. Banks are normally strict on the amount of money, time it should be repaid and the interest rates to be associated. Factors are less strict on these conditions for they provide money only after being assured of the profit making ability of an enterprise.
The lending company ensures that invoices for certain service delivery are provided prior to the factoring process. Advance money is received after a business enterprise has adequately provided the invoices and payments are collected directly from their customers for a specific period of time.
It usually takes a maximum of one day for enterprises to receive money from third party sources during times of need. The lesser amount of time it takes for them to receive the cash, the more effective the problem solving process becomes hence efficiency and sustainability in delivery of services and commodities.
Historically, ancient business ventures employed this financial tool to help in fixing cash flow that rose in their daily operations. Most cash flows required urgent attention hence quick funds were to be raised. Industrial and technological revolution also boosted this practice as demands for better goods and services rose worldwide.
All in all, enterprises dedicated to meet public demands are part of the diverse economic activities initiated by man. These ventures may at times require extra funding to boost their service delivery and this is the main reason why factoring is essential in the commercial sector.
About the Author:
Connor G. Schiffman has 27 years of experience in commercial lending including factoring, asset based lending, and banking. Connor helps readers manuver through all the account receivable options providing practical and useful knowledge to better understand all your lending options. If you want to learn more about Factoring Invoice Discounting he recommends you check out www.receivablefactoring.net.
