These problems can
be affectively addressed through receivables factoring. This
method enables a company to sell outstanding invoices for
immediate funds. This eliminates the problem of receiving delayed payments,
and it also eliminates the need to collect and
process any invoice related payments. However, there
is a cost that is associated with receivables
factoring. Companies will charge a fee for each
invoice that is purchased. The fees will vary, but they
are always based on the same
factors.
Fee Considerations for Receivables
Factoring
Customer’s credit. Good credit would
reflect less risk, which would lower the amount of the
fee.
Amount of invoices. Selling
invoices in significant numbers would generally warrant
a lower “bulk rate”.
Length of invoice. The longer a
business has extended the invoice the higher the fee
will be.
Ultimately, a company will have to
weigh the positives against the costs to see if it makes
financial sense to participate in receivables factoring.
For example, if a company had an emergency where funds
were needed immediately then it may be worth paying the
necessary fee. It is important to note that receivables
factoring is not an all or nothing proposition.
Companies are free to sell a portion of their invoices
as frequently or infrequently as they wish.
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.
