Businesses that
extend credit to customers incur a distinct set of
advantages and risks. The primary advantage is that
credit makes the company’s product or service affordable
and more appealing to a wider range of customers. For
example, an individual may never have enough cash in
hand to be able to purchase a new automobile. However,
if a car dealership offers this same person favorable
credit terms then a new vehicle becomes immediately
affordable. However, there are also several negative
factors concerning credit extension that a business must
cope with. These negatives can often be neutralized
through the process of factoring their
receivables.
Accounts receivable factoring is the
process of selling an outstanding invoice for immediate
funding. This financial practice provides a number of
helpful benefits.
Benefits of Factoring
Receivables
Timely payments. The downside of extending credit has always
included the fact that you are at the mercy of the customer
to make timely payments. As we all realize
it is very rare that all of a business’s customers would comply.
In addition, even if the terms of credit were
met, the funds would not be fully collected for
several months, or years.
Disclaimer: The information
provided in this site is not legal advice, but general
information on financial issues commonly encountered. We
shall not be liable for any errors in the content or for
any actions taken in reliance thereon. Please consult
your financial
advisor.
