It’s an alternative of traditional lending; Accounts receivable factoring or Debtor Balance factoring is a advance and modern version of Lending Formats.
In simple terms, financial factoring is selling of its accounts receivables to third party by putting some discount on it. Sometimes Businesses needs immediate cash to fulfil their commitments to the market then Debtor factoring is the best option to get cash through this kind of modern lending format. Factoring allows companies to speedily build up their cash flows, which makes it easier for them to pay workers, manage customer orders and add more business. This gives companies more time & resources to focus on growing their company. It’s not same as Invoice Factoring, Invoice factoring uses Accounts receivable as an assets as collateral for the loan.
Chargeability of factoring services
Just like any other lending type of Businesses, Debtor Factoring most importantly focusing on Creditworthiness of your customer base. Further many things matters for factoring like , your Industry, volume of invoices and cyclical period of payment and many more. A factoring company may charge 2% for the first 30 days and 0.5% for every 10 days that the invoice remains unpaid.
Factoring versus a Traditional Bank Loan
Factoring, or “Debtor financing,” is a quick, flexible way for businesses to build up their cash flow. Here is how factoring differs from a bank business loan or line of credit: