Pros And Cons Of Accounts Receivable Factoring

Getting back your money stuck in the accounts receivable section of your financial statements is not an easy job. It gets so complicated that some companies decide to have another company do that job for them.

Accounts Receivable Factoring is a way of achieving this and getting funding at the same time. You benefit from using factoring because you end up saving money, the one that otherwise invested in the collection process. Accounts Receivable Factoring is a form of externalizing the cost that accounts receivables represent to your company and increase your working capital with little or not delay costs.

Accounts Receivable Factoring companies may also provide other services additional to the standard collection. They give you reports and keep accounting records of their work. They may even do risk assessments that would allow companies to understand what customers are more expensive than others. You benefit from this because you could take measures by improving your credit lines. Accounts Receivable Factoring are also responsible for transferring the funds.

Accounts Receivable Factoring has some positive aspects. This type of funding is less costly than bank financing and has a simpler process. Accounts Receivable Factoring requires some investments but it is comparably less costly than other sources of financing.

On the other hand, Accounts Receivable Factoring may carry legal implications when contracts are not fulfilled the way both parties agreed to.

If you have not understood how Accounts Receivable Factoring work let us clarify it. When a company is overburden by accounts receivables and sells them to a company (a factor), this company will become responsible for their collecting and giving the company its money back.

Customers are instructed to pay their bills directly to the agent or factor, which acts as a credit department of the company. When the factor receives the payment, the agent retains a fee for their services and pays a percentage given to the rest of the company. Most accounts receivable are purchased with corporate responsibility, which means that if the agent fails to recover them, the company needs to repay the amount either by cash or replenishing the uncollectible accounts by other more viable.