Factoring Financing

factoring_financing_calculatorFactoring as a Finance Alternative for Small and Medium Businesses

Small and medium enterprises thus SMEs are considered as the main drivers of employment and economic growth. But, sometimes they are constrained by lack of access to finance. So as to avoid such drawbacks they are expected to seek the help of external finance organizations. That said factoring enabled SMEs to gain access to finance. Upcoming entrepreneurs should be more aware of the availability and acceptance of factoring as an alternative for their growth and search for the best factoring companies.

Definition

Factoring can simply be analyzed as a financial tool that allows SMEs to get money or capital against their credit sales immediately. It has an advantage such that, they don’t have to wait for it to mature. The process has recently been modified so as to suit various types of industries.

In simple terms, factoring means selling your credit invoices to a third party such that you get the immediate payment against that invoice. Afterward, the factoring company will later pay you the invoice amount in two different installments. For instance, you will get the first installment of about 70 to 95 percent of the invoice value. In fact, the invoice value is posted to your bank account within one or two days. When the consumer pays the invoice amount, the second installment is paid to you.

How Factoring Benefits Businesses

-Factoring is considered as a boon to every business, and it pertains to people that offer credit sales to a wide range of customers. It helps in increasing the cash flow dramatically and also enables you to use the money for payments to your suppliers, employee’s salaries or even to buy goods in bulk.

-Due to lack of operating cash for SMEs, factoring helps them to achieve the high rate of growth and sustainability.

-Factor a lot to factor a little: If you need cash urgently, there is no limit to many invoices that will decide to take. , as long as the company approves customer

Criteria’s Applied by Factoring Companies

loanIt’s unfortunate that the factoring company does not approve all business. For instance, they have to verify your independent business by reference so as to support the documentation process. Besides, the factoring company will only purchase the receivables that are the actual right of payment where the underlying goods and services have been received and accepted by the indebted party.

Furthermore, the intended party must be instructed that payment will be made directly to the factoring company. In such cases, the company must first acknowledge the receipt of the payment schedule.