Collections Factoring

Written by James McNee
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When businesses are hampered by cash flow problems, they may want to consider collections factoring. Increased sales are very beneficial to growth and stability of a business. However, invoicing and collection of payment can be time-consuming and difficult. The time spent waiting for cash could be used to purchase new supplies and to fulfill new orders.

Benefits of Collections Factoring

When invoice collections are turned over to a factor, the business receives 70 to 90 percent of the total immediately. They are free to use the cash to buy supplies or equipment needed for new orders. They may choose to pay bills early, which will give them a discount on their next order. The ability to use the cash early promotes growth and security of the company. The risk of non-payment is assumed by the factor.

By using collections factoring, businesses can offer better terms such as NET 60 or NET 90 days. This will attract more customers, some of whom are more interested in negotiating terms than price. Often, the cost of factoring can be built into the cost of goods or services. This service is very flexible, with businesses factoring as little or as much as they wish.

Collections factoring is a great solution for new or struggling businesses because approval is not based upon their own credit standing as it is with a traditional loan. Factors evaluate the credit reliability of the invoiced customers. Receiving cash early allows prompt payment of bills, thereby improving the credit rating of the business and encouraging growth and expansion.

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