Management sometime to try to minimize administrative cost, improve quality of the collection, and resolve cash flow problems by using two effective ways, one is factoring it accounts receivable and another is invoicing discounting.
These two technologies are very fruitful especially for the small companies that just start up their business. In this article, we will detail discuss the major aspect of factoring account receivables.
So who provides this great service?
Well, it is the Factoring companies and they are defined as ‘a doer or collectors of business for another’, yet factoring companies specializes in trade debts, and manages the debts owed to a client (a business customer) on the client’s behalf.
The companies have many specialists that could manage and collect the debt or trade receivable for other companies more effectively as just because of their experience, specialization and, skill.
Before we decide whether we should sales our accounts receivable to factoring companies or not, we should know that the main aspects of factoring account receivables. The following is its main aspect:
Administration: the companies will help its client on invoicing, sales accounting, and debt collection service. If the companies decide to factor it account receivable, they need not to concern about these jobs anymore.
However, both companies will need to have a contract and detail on how to do these jobs.
Credit protection: companies will be responsible for all the loss of credit if the customers are not going to pay. In this aspect, the company could make sure that it will not face such a risk.
Receive cash in advance: Base on the contract the factoring companies will pay its client the cash deposit say, 70% of total account receivable.
There will be many other aspects might not be included here.
Conclusion: We hope that this post will help you understand the concept of factoring account receivables, and how it works with factoring companies.