Invoice
factoring is also known as accounts
receivable factoring. It has become a concept of increased
significance. It is a type of financing method in which a business sells its
accounts receivable or bills or unpaid invoices to the factoring company. So,
it is a financial transaction that happens between a business company and a
factoring company. When the business sells its accounts receivables to a
factoring company, the factoring company provides immediate cash to the
business in return.
It is used by
businesses to get a certain amount of cash in less time. Rather than waiting
for their clients to pay and clear their bills after 60 to 90 days, it is a way
in which the companies get immediate cash from the factoring company to carry
out their daily expenses.
Factoring is
hence beneficial to both the party because it allows the business company to
continue its work and do not stop due to the lack of cash flow. On the other
hand, the factoring company retrieves payment from the clients of the business
company and charge their fee from the business company. A great benefit to the
business company is that the factor companies take the entire risk of
collecting the payment against the account receivables. They just charge the
factoring fee from the business companies, which is a part of the amount of the
receivables that are collected by them. the fee can either be a fixed
percentage of the amount or can depend on the things like the quantity of the
receivables, the type of industry they are working with, the creditworthiness
of the clients of the company, number of outstanding days, and many more
factors.
There are two
kinds of factoring methods. The first one is the recourse factoring and the
other one is the non-recourse factoring. In the recourse factoring, the factor
companies charge a lesser fee as compared to the non-recourse factoring. It is
because, in the recourse factoring, the factoring company does not ear the risk
of bad debts. In fact, the factoring company can as for their pending money
from the business company if it does not get the same from the clients of the
company. In a non-recourse factoring method, the factoring company bears the
risk if the clients of the company decide not to pay the bill. In this case,
the business company bears no liability. The fee for non-recourse factoring is
obviously higher as compared to the recourse factoring.
Trucking factoring has become a savior for the business companies who have late-paying
clients. They always have the cash in hand so that they can proceed with
important expenses such as paying salary to the staff, fuel, maintenance,
repairs of the damage, insurance, etc.
