Factoring Definition made easy!
When companies hear of factoring and start their search to see if it will be a good fit for them one of the first things they look for is a good definition of what factoring is. The purpose of this article is to give companies that are considering factoring a simple to understand factoring definition.
Wikipedia does a good job with the current definition of factoring:
"Factoring is a method used by a firm to obtain cash when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts. The use of factoring to obtain the cash needed to accommodate the firm’s immediate Cash needs will allow the firm to maintain a smaller ongoing Cash Balance. By reducing the size of its cash balances, more money is made available for investment in the firm’s growth. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customer's bank."[Accordingly, Factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with Factoring the Receivables. Therefore, the trade off between the return the firm earns on investment in production and the cost of utilizing a Factor is crucial in determining both the extent Factoring is used and the quantity of Cash the firm holds on hand.
Many businesses have Cash Flow that varies. A business might have a relatively large Cash Flow in one period, and might have a relatively small Cash Flow in another period. Because of this, firms find it necessary to both maintain a Cash Balance on hand, and to use such methods as Factoring, in order to enable them to cover their Short Term cash needs in those periods in which these needs exceed the Cash Flow. Each business must then decide how much it wants to depend on Factoring to cover short falls in Cash, and how large a Cash Balance it wants to maintain in order to ensure it has enough Cash on hand during periods of low Cash Flow."
Every factoring company is a little different from its competitors. Below is a list of the main things that clients or Fast A/R Funding should understand and things that make Fast A/R Funding different from the competition:
- Our System is completely paperless
- We have no minimum volume requirements
- With proper notice our contracts allow clients to leave at any time
- We receive no income other then the factoring fees associated with an invoice
- We do not require you to factoring all of your invoices
Click the link below to get more information about our factoring program for small business.
If you have any questions please don't hesitate to give us a call at 888.833.2286 or send us an email at info@fastarfunding.com.
