Advantages of Debt Factoring

Debt factoring is the process of selling customer accounts receivable to a specialized finance company known as a factor. The invoices are purchased at a discount and then the factor collects directly from the customers.

Factoring has several important advantages for businesses:

• Quick Financing - A business can immediately receive cash for the customer accounts receivables that are carried on its books. This can be important is the business needs cash to pursue further growth.
• Cash Flow - On an ongoing basis, the business will have improved cash flow since it does not need to wait to receive cash from its customers.
• Shortens Cash Cycle - Similar to above, the time frame that it takes for a business to turn its cash to goods to cash is accelerated.
• Protection from Bad Debts - If you are using non-recourse factoring, any bad debts are the responsibility of the factor.
• Cost Effective Collections - Instead of using business resources to pursue accounts receivable and collect accounts, the factor will typically handle these transactions.