Today there are hundreds of factor companies that are ready to take charge of your accounts receivables and pay you the amount almost instantaneously. Why do they do so? What are factoring companies and why you should outsource this to professional? These are the questions that you will find answers to ahead.

Factoring accelerates the time in which you receive your payments. Typically, slow-paying clients are the primary reason why companies use factoring. Factor companies consider the accounts receivable and grant liquidity to companies. It phases out the cash flow problems faced by many companies and provides the capital to meet necessary expenses like payroll and any plans for business expansion.

Factoring is like a credit card being used to make a payment. A person makes a purchase for which the vendor gets paid immediately, and the person gets time to pay the credit card company back with some fee. The credit card company acts like a factoring company taking a risk on the accounts payable for the vendor and gives immediate payment to the store. The company then gets paid by the person in the allotted time.  Similarly, when you have invoices that need to be cleared (you have to receive the payment), you call upon a factoring company. The factoring company takes your account payable gives you the liquidity and gets the revenue from the client who was supposed to make the payment to you.

Factoring is an Asset Based Lending product which turns out to be very useful for organizations that have a shortage of working capital. As this is a cost-effective method to outsource your accounts payable, giving you the much-required time to manage your business. The competition in the market amongst factoring companies usually turns out to be beneficial for business owners as they are offered competitive prices. It gets them immediate funds for their ledger on amicable rates.

The cashflow allows for smoother financial planning, as cash is credited as soon as the invoices are generated. It gives capital for further investments or growth.

A factor knocks out the need to apply for a loan or credit from any other source, which is not only a time taking process but also charge you a higher rate of interest. As mentioned before factoring is an Asset Based Lending system; this stamps out the need for any collateral saving you from hefty paperwork and saves time and money. You are in control of how you utilize the money, as the factor has no control over how you spend the capital.

Once the invoices are approved, payments are released within a day or two, banks and other lending organizations take us as much as half a month to process requests to release funds. It also saves you bookkeeping costs.

Additionally, factors come in handy when dealing with new customers, and they can provide you with information about your prospects mitigating risks and allowing you to negotiate terms better.