Factoring Companies Purchase Existing Receivables

2007-04-12 11:34:06

( Business )



If your company needs to increase its cash flow, you may want to consider factoring. In factoring, you actually sell your qualified corporate receivables at a discount from the face value to factoring companies, which include banks and other financial institutions. They will then direct your borrowers to pay their debts directly to them.

To qualify for factoring, your organization's financial statements should indicate a sound financial condition and your accounts receivable should consist of creditworthy customers. Factoring companies will take into consideration your organization's management and financial strength including the quality and distribution of your customers. Your chances to obtain approval for factoring will increase if your organization maintains organized financial statements.

Unlike most venture-capital arrangements, your organization's ownership percentages are not altered in factoring. Your organization does not have to be profitable for the past years of operation, or be in business for a number of years. The usual lender requirements such as business plans, projections, and tax returns are no longer necessary when you apply for factoring. This makes the release of funds fast and easy.

But factoring comes with some drawbacks. Although factoring companies require you to have solid finances, your customers may think you are having financial difficulties when you go into factoring. And since factoring is done without the knowledge and consent of your borrowers, they may find factoring intrusive.

The cost of factoring is also more expensive than most of the conventional loans. If you sell your corporate receivables with recourse, you will still have to pay for the factored capital should your customer fail to pay the factoring companies. And if you do not watch out, your organization may get caught in a vicious cycle of factoring. You may want to talk to a cash flow consultant first before you take out factoring.


All rights Reserved © Tradenet Services srl
Do not duplicate or redistribute in any form.