Factoring is an arrangement between a factor (financial institution) and a company dealing in goods or services. The factor pays a certain percentage of the invoice value amount and bears the responsibility for collecting the outstanding invoice amount owed by the customers for goods or services procured.
Factoring Process
Factoring is an alternative financial solution ideally designed for businesses that allow them to access funds that have been tied up in accounts receivable. Factoring process is as follows:
· Company submits invoices
· Factor verifies the invoice
· Factor upfront pays up to 80% of the invoice amount
· Factoring company follows up and collect the amount from the company’s client on the due date
Advantages
· Factoring helps the company improves its cash flow
· Cash flow management become easier for companies
· Factors manage credit control
· Factoring company also provides receivable Management