Factoring businesses are companies that help out businesses that are suffering from cash flow crunches. When a business has to run smoothly then the clients need to make their payments in full and in a timely fashion. But if these payments do not come in on time then the business suffers from serious cash flow problems.
Generally in such cash crunches, businesses turn towards the banks and other traditional financial institutions. But taking out a loan is not always a viable option. It is better to use factoring financing. In factoring financing the unpaid invoices are purchased by factoring companies at a discounted rate. This transaction should not be confused with a loan. This article will discuss how this sort of financing is different from a bank loan.
First and foremost, a bank loan needs to be repaid with the interest levied on it. In this financing there is no interest and no need for repayment. The company simply buys the invoices so it is essentially a sale and not a mortgage. The company is not forwarding the business any money, so the money gained from the transaction is basically the business’s payment for the goods supplied (only it is not the complete payment).
Also, when taking a loan there are a number of legalities and procedures that need to be completed and the business is required to come up with some kind of security against which the loan will be given. The financing is just a sale, plain and simple, so there is absolutely no need for any security or credit score inspection or anything else required. Getting a loan sanctioned takes time but in the case of the financing the money can be received within 24 hours.
Source by Michael C Logan