Thursday, 10 January 2019
Businesses looking for a more efficient means of managing accounts receivable should consider taking a longer look at the “factoring" side of the receivables equation.
In short, receivables factoring can help your business maximize and stabilize cash flow, have faster access to incoming funds, improve profits and allow you to focus more time on core strengths.
By definition, accounts receivables factoring, also known as invoice factoring, steers the customer payables invoices and accounts to a financial institution, which in turn provides the business with an immediate line of credit.
In an invoice factoring scenario, the unpaid invoice becomes a de facto form of collateral to the bank or financial institution. That saves a business from having to wait for payment, while the bank charges a service fee for handling the customer invoice payment.
With any potential change in a company's accounts receivable practices, there are upsides and downsides in shifting to an invoice factoring partnership. Here are some accounts receivable financing pros and cons:
Fortunately, most of the negatives associated with accounts receivable factoring can be curbed or eliminated altogether through smart negotiations, good preparation, and candid communication with customers about invoice payments.
The positives may outweigh the negatives especially if your company is looking for a way to secure faster payments, retained control of your business, and more time to focus on the issues your company needs handled most.
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates. All accounts and credit are subject to approval, including credit approval. BBVA Compass is a trade name of Compass Bank, a member of the BBVA Group. Compass Bank is a Member FDIC.
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