January 5th, 2009 | 
Author: 
Sany Rane asked:
If you are wondering what accounts receivable factoring is all about, you may find all that you want to know right here. You may already know what an account receivable is, a debt owed by your customer to be paid in later due date.
But what exactly is factoring? It is a transaction in which you sell your rights to collect your customer debt in the future in exchange for cash you can collect today.
A typical scenario
You have a customer that has been with you since your early business days. Both of you have developed a good relationship, and you agree to extend credit agreements to increase your sales.
Your profit went up as you began selling more products for that customer. Then recession strikes, you are still selling in large volume but you sold the goods on credits. The economic downturn has left you no option but to stop extending credits for customers because you need cash badly.
Handing out credits is easier than collecting it, especially if you have a good relationship with a particular customer. You just don’t want the loyal customers to leave you stranded while the economy takes a dive. You need them now more than ever, but your cash flow is shrinking. What can you do to solve this problem, get the cash and keep the customer at the same time?
Here comes the answer!
An accounts receivable factoring company might be your help, as they specialized in buying your accounts receivable at a discounted rate.
This is a common practice in business, and available to all company size. The term used for larger companies is securitization, in which the receivables are pooled and sold through a trust company. Any assets or receivables that have cash flow can be pooled in securitization. Investor would then buy the receivables in the form of securities, bonds, or obligations.
An invoice factoring is another term used for accounts receivable factoring practice among smaller businesses. This practice improves cash flow as well as reducing risks of credit defaults. By having cash, your company can start to create more products or pursue other initiatives now.
Is it different from Loan?
There are some difference between accounts receivable factoring and a loan. The main difference is interest rate, in which a loan as a form of debt will incur interest. Instead of interest, factoring has a discount rate, because it is an exchange of asset value. Money in hand now is worth more than money promised later.
Small Business Factoring Companies
If you are wondering what accounts receivable factoring is all about, you may find all that you want to know right here. You may already know what an account receivable is, a debt owed by your customer to be paid in later due date.
But what exactly is factoring? It is a transaction in which you sell your rights to collect your customer debt in the future in exchange for cash you can collect today.
A typical scenario
You have a customer that has been with you since your early business days. Both of you have developed a good relationship, and you agree to extend credit agreements to increase your sales.
Your profit went up as you began selling more products for that customer. Then recession strikes, you are still selling in large volume but you sold the goods on credits. The economic downturn has left you no option but to stop extending credits for customers because you need cash badly.
Handing out credits is easier than collecting it, especially if you have a good relationship with a particular customer. You just don’t want the loyal customers to leave you stranded while the economy takes a dive. You need them now more than ever, but your cash flow is shrinking. What can you do to solve this problem, get the cash and keep the customer at the same time?
Here comes the answer!
An accounts receivable factoring company might be your help, as they specialized in buying your accounts receivable at a discounted rate.
This is a common practice in business, and available to all company size. The term used for larger companies is securitization, in which the receivables are pooled and sold through a trust company. Any assets or receivables that have cash flow can be pooled in securitization. Investor would then buy the receivables in the form of securities, bonds, or obligations.
An invoice factoring is another term used for accounts receivable factoring practice among smaller businesses. This practice improves cash flow as well as reducing risks of credit defaults. By having cash, your company can start to create more products or pursue other initiatives now.
Is it different from Loan?
There are some difference between accounts receivable factoring and a loan. The main difference is interest rate, in which a loan as a form of debt will incur interest. Instead of interest, factoring has a discount rate, because it is an exchange of asset value. Money in hand now is worth more than money promised later.
Small Business Factoring Companies
About Wade Henderson
Wade Henderson: Domestic and International Business Finance since 1995 specializing in challenge situations. "We prefer to find a way to get your loan done as opposed to finding a reason to turn it down.” Connect with me on Google+
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