Factoring is one of the most progressive solutions to all your financial problems

Being a small business enterprise is not easy. The difficulties that small companies face are the low cash flow. Since the company is small the turn over that the company can generate is also low. Stagnancy is what most of the small enterprises face. This is where factoring can be having help. Factoring is an age old procedure that has been in use since ancient times but started gaining popularity just recently. A factoring company is a firm that provides you such a service.

 

What is factoring?

Factoring is a procedure where the factoring firm pays you the transaction money the minute an invoice is generated. When the customer makes a purchase, the factoring firm gives you the whole money against the invoice generated. This means you don’t have to wait for the client to make the whole payment immediately. Then once the client pays the rest, the factoring firm takes what is their fee, which is nominal and gives back the rest. This way you don’t have to worry about a cash blockage. The money is always in circulation. This money that you get can be put to better use. Mostly the business owners find that money crunch occurs when the money is held up at one end so money to purchase the materials for the next order or office supplies and many other factors hinders the business.

 

Why factoring is better

There are many other ways of getting flowing cash. On among that method is to loan money from banks or a firm. The money that is loaned will have o be paid back either as installments or as a lump sum along with the interest. To receive loans mostly the bank or firm requires you to put collateral as security just in case if you can’t pay it back. When the payment is not made the collateral piece that you mortgaged is confiscated. The other common way of getting money is to mortgage items. Even in this case a piece of significant amount is mortgaged and the money you receive against it can be used for your business purposes. Both these cases will incur you a lot of money wastage in the form of interest. Also the money is not generated as per your sale. This means that you might be over drafting or under drafting the money lending. Hence it has been observed that factoring is better.

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