Has it ever frustrated you to miss opportunities in making good business because you are never able to collect from your customers? Does it bother to have good customers and still not being able to pay your suppliers? If you answered positively to any of these questions then you should take a closer look into Accounts Receivable Factoring or AR Factoring.
AR Factoring (accounts receivable factoring) is a financial mechanism through which a company can speed recovery of your portfolio of accounts receivable by discounting their invoices to a financial institution or sometimes even to the same customer.
Let us explain to you step by step how AR factoring works. The first thing your company needs to do is determine what bills of what customers the factoring company will collect for you. Those bills belong to customers that had a period (eg. 90 days) to pay back and have not done it. The AR Factoring firm you choose will have agents called Factors look at your case and will examine your financial stability and establish whether they can collect from your customers.
Once this analysis is performed, they will indicate which the discount rate to apply to your bills is. If the business is convenient for you, they should deliver their papers accepted at the financial institution and later it will deposit to your bank account the amount agreed. The financial institution will pay the customer to submit the bill.
AR Factorings main goal is to increase the working capital by allowing you to have more available cash flow in order for you to face your commitments or to increase your investments. If you are in the exporting business, for example, and you predict the newest game console will be the hit during the upcoming holidays. In order for you to invest in the large number of new video game consoles that you expect to sell, you need to get credit from your supplier. However, this supplier does not want to give you credit and expect full payment of his merchandise. AR Factoring will allow you to buy from these kinds of suppliers, because you would have working capital that you can use to purchase the products you need.
AR factoring is a legal and widely accepted tool. However, you need to be aware of the cost that it implies to your business. We suggest that if you decide to use factoring, you can transfer the costs to your customers down to a certain percentage without over charging them too much.
AR Factoring (accounts receivable factoring) is a financial mechanism through which a company can speed recovery of your portfolio of accounts receivable by discounting their invoices to a financial institution or sometimes even to the same customer.
Let us explain to you step by step how AR factoring works. The first thing your company needs to do is determine what bills of what customers the factoring company will collect for you. Those bills belong to customers that had a period (eg. 90 days) to pay back and have not done it. The AR Factoring firm you choose will have agents called Factors look at your case and will examine your financial stability and establish whether they can collect from your customers.
Once this analysis is performed, they will indicate which the discount rate to apply to your bills is. If the business is convenient for you, they should deliver their papers accepted at the financial institution and later it will deposit to your bank account the amount agreed. The financial institution will pay the customer to submit the bill.
AR Factorings main goal is to increase the working capital by allowing you to have more available cash flow in order for you to face your commitments or to increase your investments. If you are in the exporting business, for example, and you predict the newest game console will be the hit during the upcoming holidays. In order for you to invest in the large number of new video game consoles that you expect to sell, you need to get credit from your supplier. However, this supplier does not want to give you credit and expect full payment of his merchandise. AR Factoring will allow you to buy from these kinds of suppliers, because you would have working capital that you can use to purchase the products you need.
AR factoring is a legal and widely accepted tool. However, you need to be aware of the cost that it implies to your business. We suggest that if you decide to use factoring, you can transfer the costs to your customers down to a certain percentage without over charging them too much.
About the Author:
Wade Henderson - very Professional - 15 yrs in the Business Finance Field - reputation for getting the deal done. IMMFinancial.com construction factoring non recourse factoring
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