FAQ About Factoring Accounts Receivable
To help you understand the in and out of factoring accounts receivables, we have put together a set of frequently asked questions with answers. Please read and get answers to all your questions with respect to Receivables Factoring.
1. What is factoring accounts receivable?
An organization sells the invoices that its customers owe to a factoring company. The factoring company, in turn, gives immediate cash to the organization. The cash is calculated according to the total amount of invoices. The factoring -company later collects the invoice amount from the customer. The factoring com-pany then reduces its commission amount, and the loaned amount and gives the balance to the organization.
2. What kind of companies opts for receivables factoring?
Organizations need smooth cash flow to keep the business running. When a customer delays the payment, some organizations do not have sufficient funds to manage the operating costs. To process further delivery and meet the maintenance cost, the organization will need money. Such organization can opt for factoring accounts receivable to get some instant cash. Also, start up companies that cannot approach banks as they do not have a credible credit history can opt for this method.
3. How effective is this method?
If one can approach the right kind of factoring company, this method is very advantageous. As opposed to bank loans, the processing time in getting money against Factoring Accounts Receivable is very less. Even a start up company can get some immediate cash to keep the business running. In some cases, a long-term relationship can also be established between the organization seeking money and the factoring company.
4. What are the pitfalls in receivables factoring?
An organization will need to pay a certain amount to the factoring company. It could be any amount depending upon the charges of the facto-ring company and the loan amount. This may turn out to be an unwanted expense and pull down the profits of an organization. Another problem is that the factoring com-pany will collect the amount from your client on your behalf. The methods adopted by the company may or may not be liked by your client. In worst cases, you may lose your client when you opt for factoring accounts receivable means of fund raising.
5. When is it best to go for receivables factoring?
When an organization is in dire need of immediate cash, this method is a good one. Especially in case of new start-up organizations, which have not been in the business for a long time find this option a viable one. Banks may take a month or two of processing time. But receivables factoring companies take very less time to make the payment to the organization thus eliminating unwanted delays.
1. What is factoring accounts receivable?
An organization sells the invoices that its customers owe to a factoring company. The factoring company, in turn, gives immediate cash to the organization. The cash is calculated according to the total amount of invoices. The factoring -company later collects the invoice amount from the customer. The factoring com-pany then reduces its commission amount, and the loaned amount and gives the balance to the organization.
2. What kind of companies opts for receivables factoring?
Organizations need smooth cash flow to keep the business running. When a customer delays the payment, some organizations do not have sufficient funds to manage the operating costs. To process further delivery and meet the maintenance cost, the organization will need money. Such organization can opt for factoring accounts receivable to get some instant cash. Also, start up companies that cannot approach banks as they do not have a credible credit history can opt for this method.
3. How effective is this method?
If one can approach the right kind of factoring company, this method is very advantageous. As opposed to bank loans, the processing time in getting money against Factoring Accounts Receivable is very less. Even a start up company can get some immediate cash to keep the business running. In some cases, a long-term relationship can also be established between the organization seeking money and the factoring company.
4. What are the pitfalls in receivables factoring?
An organization will need to pay a certain amount to the factoring company. It could be any amount depending upon the charges of the facto-ring company and the loan amount. This may turn out to be an unwanted expense and pull down the profits of an organization. Another problem is that the factoring com-pany will collect the amount from your client on your behalf. The methods adopted by the company may or may not be liked by your client. In worst cases, you may lose your client when you opt for factoring accounts receivable means of fund raising.
5. When is it best to go for receivables factoring?
When an organization is in dire need of immediate cash, this method is a good one. Especially in case of new start-up organizations, which have not been in the business for a long time find this option a viable one. Banks may take a month or two of processing time. But receivables factoring companies take very less time to make the payment to the organization thus eliminating unwanted delays.
