Apart from knowing the parameters that influence the accounts receivable factoring solution, like discount rate, fees and other parameters that affect the factoring services, it's also important to know that there are various advantages and disadvantages of using a factoring service.
First, let's discuss the merits of applying to a factoring company. Accounts receivable factoring companies generally provide us with the funding necessary during a financial crunch when we cannot expect our customers to pay for the credits that we have given. For growth prospective and for just keeping the business running smooth, we need a cash reserve. Factoring companies give us the fund that we need, in return to the invoices that contain the detail of the credit that we have given to our customers.
The money would be given by the factoring companies in just 24 hours which can help you a great deal at a time of financial crunch. Most business do get benefited out of the accounts receivable factoring solution providers and in a way this option is far better than, going to the banks who apart from charging a huge interest rate also demand a lot of complicated paperwork, which ultimately delays the availability of funds when we need them the most. Moreover, the advantage also lies with this option when we consider that most banks do not lend money to all types of businesses where as these factoring companies do not bother what business you are dealing with.
Rather than worrying about the money to be collected from your valuable customers, these service providers ease off the pressure by providing right amount of funds at the right time. However it's always better to find out the charges and the fees taken by the service providers before approaching them.
Coming to the demerits of this service, first thing to be kept in mind is that these factoring companies charge more fees to clients if they are from high risk areas for example if a type of business is more prone to risk, they would likely charge you more money as fees.
Most accounts receivable factoring companies would ask you to pay up the whole money if your customers fail to pay it up. It depends on the type of agreements. Certain type of agreements would hold you responsible for the losses incurred, if your customer fails to pay the owed money. So be sure to check what agreement you are signing on.
The accounts receivable factoring solutions provider is also likely to ask you to keep collateral if your customers do not have a good reputation history. The charges may also be high. Negotiations would always help to get a good deal. All these things should be kept in mind while approaching a service provider, to avail factoring funds.
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