The Advantages of Factoring

by Factoring Companies on June 23, 2010

With the understanding that commercial Factoring affects not only the seller and its factor, but their clients as well, there are a number of advantages and benefits for all parties involved.

Since the responsibility of collecting the payments falls on the Factor, making the seller exempt from all credit and collection-based issues the theory behind the concept is then, that everyone in part will be paid off in an ample amount of time without having to worry about any financial hang-ups.

Some of the main “advantages” include the fact that no money is being borrowed by the business. The actual money that is due to the seller is based on the credit situation for that seller’s clients. What makes this such a good benefit for those involved in commercial Factoring is that even new companies have a chance to take advantage of Factoring regardless of the company’s history, such as if that company has had to file for Bankruptcy.

A second benefit for a business that is part of Factoring is that the factor will make any decisions as to a client’s credit history when sending them an invoice.

If a credit analysis shows a lack of loyalty in a client’s ability to pay, then the Factor can terminate that client’s past relationship with their seller.

Lastly, and probably the item with the most concern behind it is that a payment can be received by the seller from the Factor within a short time period after the shipment, delivery and invoicing on the sold goods has been completed without that seller having to wait for credit approval from a particular client’s financial resources.

In most cases of shipped goods through commercial Factoring, a payment is generated by the factor to the seller within a 24-hour period.

Other benefits pertaining to being a part of Factoring that might be of interest are included with some of the services that are offered through a Factor such as the “same day funding” practice.

There is also the benefit of the seller receiving daily reports on the status of their goods to ensure the seller receives a substantial profit.

There are no standing term contracts that have to be signed by the seller in order to use the services of their Factor, and also the seller will receive the free services of the Factor’s credit and collection staff to ensure they spend more time selling their goods instead of checking out their customer’s credit status.

Finally, working hand-in-hand with a Factor creates an incentive for the seller because for one, their work capital will increase without causing any change in their equity, or their own credit.

Sellers will also be able to take advantage of discounts on any supplies they purchase when they make early payments to their respected Factors, and what ever type of equipment is purchased by the seller will increase that seller’s profits as well.

The whole idea of the seller or company joining forces with a respected factor is to strengthen credit ratings and boost profit for everyone involved.

Leave a Comment

Previous post:

Next post: