Account Receivable Factoring – Knowing Its Secrets and Dangers

Account receivable factoring is one of the oldest forms of business financing. To define, this is the selling of outstanding invoices or receivables at a discount to a factoring company that assumes the risk on the receivables and provides quick cash to your business. The amount of value assigned to the account depends on the age of a receivable. A more current invoice will pay more. Any accounts receivable over 90 days typically are not financed. Your company would then sell your account receivables to the factor company. This company will then purchase this item and lends you money for your company’s financial needs. You will get the money after you had presented all the necessary documents, within 24 hours. Thus, this transaction is fast, simply and efficient. Therefore, in the end, your company gets the cash and the factoring company gets the accounts at a discount.

Factoring works by doing a financial exchange between two companies – the factor company and the company in need of cash. In this financial scenario, accounts receivable is the most important collateral. Your account receivable will then be converted to cash very quickly.

Lastly, this method ensures a fast and easy access to financial funds. You just have to present the necessary documents to the factor company and you will have the needed funds within 24 hours.

However, there an accompanying warning in acquiring funds using accounts receivable factoring. Since there are a lot of factor companies out there that hid dangerous stipulations in their terms and agreements, it is a must to have a careful study on them.

There are certain warnings that you should follow in accounts receivable factoring. A careful planning is a must. A careful study on the terms of agreements, as well as the rates, interests and stipulations is needed. However, to be on a safe side, it is much better to consult an experienced accountant to help you decide what best option is needed for your company.

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