Many entrepreneurs face the problem when there is sales market, but the client does not always have the money to pay immediately for the received goods. Delivery of products with deferred payment today have become a commonplace. However, some companies can not afford to provide such services, since the amount barred from turnover affects business stability. For such cases there is factoring. This range of services provided by specialized firms is aimed to repurchase receivables. That means that factoring companies are intermediaries and the link between the client and the supplier of goods or services.
How does factoring work in practice?
If the seller ships the goods or provides services with deferred payment, it is necessary to sign the agreement, which specifies the period for return of money and other nuances. The seller, in turn, refers to a factoring company, provides them with all documentary evidence of accounts receivable from customers and gives them the right to make concessions of it, after that he receives the payment for providing products in full or partially. So now the customer owes money to the intermediary. Nevertheless, the client still transfer funds to the seller. When the seller receives the money, he returns specified amount with additional fees to the factor.
What does factoring give?
Today, factoring has become an integral part of doing business, as each participant in the chain gets its own benefit.
The seller has a permanent sales market, thus receives payment in full, regardless of whether his client has the sum of money at the moment. In addition, large amounts are not withdrawn from company turnover that allows to develop business, gain traction and function properly without interruption.
Even if the customer has financial difficulties or it does not have the required amount to pay for the purchase of necessary goods, he can still get it, because the buyer is always ready to give a reprieve.
Factoring company receives its own percentage of each transaction.
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