Popular in Course
verified elite notetaker
Popular in Finance
This 2 page Document was uploaded by an elite notetaker on Monday December 21, 2015. The Document belongs to a course at a university taught by a professor in Fall. Since its upload, it has received 8 views.
Reviews for The-Pros-and-Cons-of-Invoice-Factoring
Report this Material
What is Karma?
Karma is the currency of StudySoup.
You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!
Date Created: 12/21/15
In order to increase working capital or improve cash flows, many businesses go into invoice factoring. This method allows one to sell their receivables. This is achieved as the right to collect against their respective invoices are sold to a factor that in turn advances part of the entire value and forwards the balance only upon the full collection from your customers. Invoice factoring has its pros and cons just like everything else. Of course, all of these will affect different companies variedly and depending on certain circumstances, preferences and business standing. To give you a general idea, here they are listed below: 1. Avoidance of bad debts: With a non-recourse type of invoice factoring, you get to eliminate bad debts as the financial institution will assume all risks of non collection or non payment from your customers. 2. No liabilities and no interests: Because you hasten up the age of your receivables, their value then becomes or is transferred as cash in your balance sheet. Only the assets portion is affected unlike when you actually make a bank loan that will cause both cash and liabilities to go up. Factoring does not involve any type of debt or loan. 3. Appealing balance sheet: In relation to the above, the absence of a liability and more cash than receivables make the company highly liquid. It makes it look more appealing to investors as more funds are available for use. 4. Quick access to funds: It provides for a quick source of financial resources for whatever reason the company may have. Emergency expenditures or simply a need to better working capital 5. Less hassle and less stress: It doesn’t require too many requirements. The factor won’t bug you about your credit score, credit history or financial status. 6. One time solution: Spot factoring involves only the use of one specifically chosen invoice making it beneficial for those who would only want to hasten the collection of a specific receivable as they deem fit. 1. Monthly fees and charges: If you choose traditional factoring, it requires you to pay monthly fees or charges which is intended for the receivables management. However, if you actually find yourself subjecting most of your invoices to this service oftentimes then it is actually much cheaper than putting charges on every single one of them. 2. Tie up in contracts: At the same time, traditional type can tie you up in a contract which binds you to this setting for a specified period. If however you do not want this, then you can choose a spot factor service. 3. Third party interaction: Another very common concern that businesses have with invoice factoring is having the said third party interact with their customers. They wouldn’t want them to bother their clients so much that they feel uncomfortable. There is however a solution to this. You can opt for a service that requires the financing institution to keep everything confidential.
Are you sure you want to buy this material for
You're already Subscribed!
Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'