Accounts Receivable Factoring On The Rise

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CIT Group, Inc

CIT Group, Inc. (CIT) recently announced a reorganization. The company provides business loans, financial services and financing solutions worldwide. It is one of the largest sources for providing working capital to small and medium-sized businesses in the United States.

As a result of this news, retail analysts are predicting that customers of CIT, which predominently include small retailers and suppliers, could have a difficult time obtaining financing after the holidays.

There are an estimated 29.6 million small businesses in the United States that employ more than half of the country's private sector workforce. (Source: SCORE association - www.score.org).

Small businesses have been relying on CIT and othe financial institutions for short-term financing including accounts receivable factoring, also known as the factoring of invoices for funds.

Factoring is not a loan, but rather it's the purchase of financial assets, also known as receivables, from a factoring company. Factoring is different from traditional bank funding or loans because bank loans involve two parties, while factoring involves three. Factoring companies base their decision on the value of the company's receivables, while banks base their decision on a company's credit worthiness.

Invoice factoring offers attractive features such as no minimums, or maximums, no long-term committments and no lengthy applications. It is fairly simple, and the decision usually takes less than 24 to 48 hrs.

Believe it or not, factoring has been around for more than 4,000 years. But today factoring companies have developed new products like single invoice factoring, a popular new tactic that allows companies to factor one "single" invoice at a time. Invoice factoring benefits businesses that don't get paid for 30/60/90 days. A factor advances up to 90 percent against the company's invoices. There are no minimum or maximum requirements for sales volume, and factors do not expect to buy 100 percent of a company's receivables.

Bank loans involve two parties, while invoice factoring involves three parties, and while banks base their decisions on a company's credit worthiness, factoring is based on the value of the receivables. Accounts receivable factoring is not a loan - it is the purchase of financial assets, or a company's receivables.

Factoring starts with due diligence that typically takes one to two business days, and after this has been completed the client is at liberty to offer invoices to IFG for purchase. Upon receipt of invoices, the factoring company checks the credit of the debtor named on the invoice and makes sure that the sale represented has been satisfactorily completed. Once this is done the debtor is advised of the purchase by factor and the client receives their money.

Needless to say, invoice factoring is a great strategy to employ during difficult economic times, and often provides the link to keeping companies from going out of business.

by: Kristin Gabriel

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