Have you ever heard of the phrase, Factoring Finance, and wondered exactly what it is? Well, here\’s your chance to learn something new today. Factoring finance is when a business makes a financial transaction to sell its accounts receivables, otherwise known as, invoices to a factor, or a third party. There is, also, something known as, advance factoring. This is when the seller of the accounts is offered financing by the factor in a cash advance. This cash advance can range from 70-80% of the price of the accounts where the remaining balance of the purchase price is paid. In, maturing factoring, there are no advance payments made. The price being paid for the purchase of the batch of accounts is the maturity date of the accounts.

Some people may get factoring confused with a bank loan. They are different in the fact that factoring is focused more on the value of the receivables. Where as, a bank loans emphasis is on the value of total assets the borrower has. Also, a loan is not what factoring is. Factoring is purchasing financial assets. Lastly, a factor takes on the credit risk that an account they may have purchased will not be collected. This is mainly due to the fact of the account debtor not being able to pay.

Factoring, also, gets confused with invoice discounting. A receivable is used as collateral in invoice discounting. Where as, with factoring the receivables are for sale.

The most popular reason for factoring is for companies to obtain the cash. If a company has insufficient cash flow they will often factor their accounts to accomodate for other financial responsibilities within the company. Factoring allows a company to continue with a smaller ongoing cash balance by using the cash received for other company needs. This allows more money to be available for the companies needed growth.

Another way to secure cash flow in a company is through debt factoring. Invoices of a company are sold at a discount. This is done when a company feels it would be better off using the cash to benefit its own growth. Companies would rather do this than seem to be functioning as the customer\’s bank.

Cash flow within a company varies greatly. There are times when cash flow is abundant and not an issue. Then, there are those times where cash flow has decreased within the company and this is when a company most often decides to use factoring as an effective alternative and to keep a cash balance on hand. Factoring is used when short term cash needs need to be covered. There is some delicate balancing do to within a company when it decides to use factoring. Such as, the company needs to decide how much it wants to depend on factoring and how much of a cash balance it wants to continue with so the company has enough cash on hand during decreased cash flows.

How cash flow varies within the company will decide how much of a cash balance the company wants to hold onto and how much it wants to depend on factoring. The 2 main factors of cash flow within a company is the changing of the cash flow in the company and how long the cash flow can stay at a below average level.

John Donovan is a professional copywriter and financial journalist. He writes articles about factoring and cashflow finance for a living and is an expert on everything to do with obtaining business finance

John Donovan is a professional copywriter and financial journalist. He writes articles about http://www.debtorfinance.com.au factoring and cashflow finance for a living and is an expert on everything to do with obtaining http://www.debtorfinance.com.au/content_common/pg-isimple.seo business finance

Author Bio: John Donovan is a professional copywriter and financial journalist. He writes articles about factoring and cashflow finance for a living and is an expert on everything to do with obtaining business finance

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