Factoring is something that many businesses of all sizes need to be familiar with, but many companies simply don’t have the basic factoring knowledge that they need before hiring Factoring companies in california. Here are a few tips that will make working with a factoring company much easier for everyone involved.
Understanding the Nature of Factoring
To use factoring in the best way, it is important to first understand the basic concept behind it. Essentially, factoring involves the sale of accounts receivables to a company that is designed especially for this purpose. The factoring company gives the seller cash on the spot, and the seller will never have to deal with the accounts receivables again.
The factoring company will determine the total amount being paid to the seller and enter into a contract with them stating all the specifics. In most cases, the factoring company will pay around 70 to 90 percent of the total agreed upon amount to the seller at the time of the initial sale. The factoring company will then attempt to collect the accounts receivables. This may take some time, possible several months or more. Once the factoring company has collected the accounts receivables, they will make another payment to the seller. Typically, the factoring company will charge a transaction fee before disbursing this final payment.
Is Factoring Worth It?
Most companies who opt for factoring as a way to settle their accounts receivables feel that it’s well worth it. While selling the accounts receivables will technically net less money overall than actually collecting them would, there is more to consider than just the hard figures. First, consider the convenience of factoring. It means that there is no wait for the money and no worries about keeping the business afloat. Factoring also allows a company to stop worrying about whether the accounts receivables will ever pay. By selling those accounts receivables, the seller transfers all that worry and risk to the factoring company. Dealing with accounts receivables can also eat up a lot of man hours, and selling them allows the employees to focus on the important thing: Keeping the business running as efficiently as possible.