Account Receivable Financing has both positive and negative aspects.
Let’s take a look at some of the positive sides of Account Receivable Financing:
Factoring companies usually take care of the administrative, legal and accounting responsibilities associated with handling accounts receivables. Through them, you can have access to information about the status of your customer’s debt, and how many invoices have been collected. Information that you may or may not have had before.
There is a more efficient Cash Management and a better monitoring of debt management. Factoring provides evaluation of the risks. When there is a decrease in commercial inquiries by the company on its customers.
Account Receivable Financing can be used as a funding tool and can pay in advance up to 85% of the invoices.
When you use Factoring, you will not need to worry about the collection process and can invent your time and efforts on more lucrative prospects. On top of this, Factoring companies will cover a percentage (it can even be 100%) of the total of uncollected invoices.
Generally, Account Receivable Financing companies will absorb the changes in currency based on the exchange rate set at the moment of contracting them. All of this, while taking care of the administrative tasks regarding the whole collection process.
The drawbacks of Factoring are the following:
Factoring is not for free, you will have to pay a fee that may be elevated. Additionally, some the criteria for choosing the accounts receivables may be demanding (for examples, that all the clients live in the same area, etc)
Account Receivable Financing is frequently exclusive for companies that are in western countries. If your company has business in other non-western countries, you may not be able to use it. When you use Factoring can also have the drawback of depersonalizing the process of collecting accounts receivables and therefore reduce your contact with some of your customers.
Additionally, when a Factoring company is dealing with your customers’ debt to you they may not be as nice as you would. This is one of the risks of not choosing the Factoring Company carefully.