[ad_1]
“Getting the fact, or the fact will get you.” The motto of this Thomas Fuller is true in business. That is why many small business may need some extra cash at the wrong time. Factoring can be a possible answer to their needs.
What is factoring? What are the pros and cons of these instruments?
Factoring is one of the oldest forms of Commercial Finance. The term factor comes from the Latin verb “facio”, which means “the one who does it.” Some scholars trace the origin of elements of the Roman Empire. Others go further back to Hammurabi, four thousand years.
What is factoring in today?
Factoring (also known as the grace period Funding) is the practice of selling accounts receivable (invoices) at a discount to another company. In other words, you get the money from the company that you sold your accounts receivable. At that point, they become responsible for collecting the accounts
There are generally three parties involved in this action :.
1) a supplier of goods or services originating in the account;
2) that the debtor is the recipient account for services that promise to pay the balance within the agreed payment ,.
3) factor
Why should I? Using elements
Small businesses most times have no choice: to slow their growth or using external resources outside banks. The choice to use external funds outside banks, fast growing company choice between seeking angel investors (ie equity) or a lower cost of selling accounts to finance growth.The latter of which is also easier to access and can be obtained in a matter of a week or two, versus six months plus to secure funds from angel investment typically occurs. Factoring is also used as bridge financing while the company conducts angel investors and related to angel financing to provide lower average cost of capital than would equity financing alone. Companies can also combine three types of financing, angel / projects, factoring and bank line of credit to further reduce the total cost of the funds. In this they can emulate larger companies.
What is the main difference between factoring and bank loans?
Factors make funds available, even when the banks would not do it. It is for a simple reason: factors focus first on the credit worthiness of the debtor, to those who are obliged to pay the bills for goods or services provided by the seller. On the other side, the fundamental focus in bank lending relationship of credit small business that is not of their customers. While lending bank provides capital to small businesses at a lower cost than that the main terms and conditions of the small business must operate significantly. Moreover, we provide banking relationships limited supply of money and none of bundled services components offer.
How can trade financing help my company?
By providing an immediate source of cash flow for your business. You can use this money to provide working capital, meet payroll, pay taxes, file, increase advertising, buy equipment, improve credit rating, and more.
What are the potential disadvantages of standard payment financing?
First of all, cost. The cost can vary depending on the nature of the liabilities / accounts.
Second, the fact that customers have to deal with factoring companies.
In addition, there may be other financial consequences of being able to borrow can be reduced. The auditor should be able to examine your situation and advise whether there can be any more consequences for you.
[ad_2]