Factoring
Posted by Steven in Factoring
If a company has streamlined its operations, cut frills and stretched its creditors to the nth degree, chances are it’s once again on solid ground. But if the company is still not solvent, there still one or two other options managers may consider. The accounts receivable- income due the firm from outside sources- is a little like money in the bank. A company can sell its A/R to a finance company for a percentage of their face value. The finance company takes over collection and the risk of default. This cash quick option is called “factoring”. Factoring otherwise means selling of company’s accounts receivable to a finance company for a value less than amount owed by the company’s creditors. This gives the company the cash it needs now rather than waiting for its creditors to pay.
