Factoring In Busies Finance: The Right Way!
What does the concept of factoring in business finance tell you
?
The idea behind is to sale commercial accounts invoices to other people at lower prices. This person who is interested to get this invoice is also known as a factor. Traditionally, this buyer should be in the state to hold the whole responsibility. In few words, he has to collect the payments and he has to take the risk of having some credit losses on the accounts.
Does it make sense to do it?
Do you know that factoring in business finance is ranked as one of the top rated saving money tips. Indeed, this deal is totally different from the classical loans in terms of that you do not have to pay so much money for the traditional commercial loan rates.
As a matter of fact, this idea receives a fair deal of acceptance among different merchants in the mean time. However, the increasing growth of this concept is sometimes overlooked. This honestly the fact in spite of the lower prices offered on the receivables.
Well, what is the risk of this concept?
Actually, there are no 100% perfect deals and you should not accept the first offer you get. In our deal, the risk is involved in the non- availability of the cash needed by the merchants to carry out their planned investments. This is definitely a problem and, consequently, they must wait for a long time-frame till they can make any financial gain.
Should this drawback stop you?
Actually, it should not! If the merchants are lucky and look well for the perfect buyers, then they will definitely find people who are interested to pay them immediately and, therefore, there is no any need to wait. Consequently, the merchants are free to invest the cash back into their work. Then, they can use this paid cash to invest in raw materials or pay off debt or cover payrolls.
Be Careful of this serious mistake!
Whether the quality of these services is high or low, it is strongly related to the kind of business your company provides. However, never forget that many companies that claim professionalism to do factoring in business finance are just facilitators. They play the role to sell leads and it is your duty to check the reputability of this company.
The hazards behind such companies that they will do nothing but forwarding your application to other companies and your inbox will be full of spam emails. Or they may ask you to work with other companies that offer very low quality services.
So, which way should you go now?
Based on my experiences, I would encourage you to adopt the idea of recourse factoring. In this deal, the buyer does not have to take the high risk of bad debts. Briefly, he has the right to get his money refunded in case the customer does not pay. Therefore, a written agreement has to be defined that defines the number of days after which advances should be paid back.
by: Asem Eltaher
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