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Saturday, October 24, 2009

Factoring in Busies Finance: The Right Way!

By Asem Eltaher

What does the concept of factoring in business finance mean?

This business deal is based on selling commercial invoices to other people with reasonable discounts. The person is going to buy this invoice is also defined as a factor. Normally, this buyer has to agree to take the whole responsibility of this deal. Briefly, it is his duty to collect the payments and it is also his risk to be confronted with some losses on the accounts.

Does it make sense to do it?

The answer can be mentioned in few words; factoring in business finance is rated as one of the most popular saving money tips. The reasons is the differences lie between this deal and the traditional loans in terms of that you do not have to pay high amount of money for the commercial loan rates.

This is one of the most useful tools for merchants today. The kind of growth seen with this concept is rarely seen. This is actually the fact in spite of the discount on the receivables.

Well, what is the risk of this concept?

Nothing is ideal and do not accept the first offer you find. Indeed, the biggest problem with the merchants is the non-availability of the cash needed for different investments. This would consequently lead to a problem and, therefore, they have to wait for a long time till they make any profit.

Should this disadvantage prevent you from going on?

Honestly, it should not! If the merchants did their duty to look for the ready buyers, then they will get their money faster as they could even think and the necessity to wait is no longer needed. Then, it is their chance to use this paid cash to run some extra investments or to pay back other debts.

Be Careful of this serious mistake!

The quality and value of these services depend on the kind of business your company provides. However many companies who claim to do factoring in business finance are just middle men. They just sell leads and you have to check this quite carefully.

The first danger behind these companies that they send your documents to other companies and you will have to live with spam emails. The second danger lies in forwarding your data to other companies that offer very low quality services.

So, what should you do now?

From my personal experiences, the optimal solution is recourse factoring. In this method, the buyer does not risk bad debts. In few words, he will be able to get his money back from you in case the customer does not pay up. An agreement needs to be drawn up that specifies the number of days after which advances should be returned. - 23212

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