Financial Factoring – A Great Practice for Generating Instant Cash Flow

Oct. 29, 2010 - PRLog -- Industrial globalization has paved the way for companies from all over the world to venture into every possible industry, and has led to an extremely competitive environment for any business to sustain. Even the slightest delay in the clearance of the outstanding invoices of a company can cause a huge problem in the normal functioning of a company. Financial factoring is the practice of selling unpaid invoices at discounted rates in return of immediate payment of the decided amount.
This business is run by privately owned factoring companies which buy unpaid invoices and makes immediate payment. However, once contacted by an interested client, the factoring company buys the invoices at discounted rates. Once the deal is through, the debtors are notified about the sell, and are requested to make the payment to the factoring company. This saves the selling party from the various hassles involved in collecting on unpaid invoices. Besides offering immediate cash flow to the selling party, this practice is great for factoring companies as well; as even though these companies buy invoices at discounted rates, they collect the outstanding payments in full. Once the collection is complete, even the factoring companies end up experiencing great profit.
Even though financial factoring is a great practice for dealing with cash crisis, it has some limitations as well. First of all these companies will not by any invoices that are more than ninety days old. Invoices that are more than ninety days old are collected by collection agencies. Another factor these companies consider is the creditability of the debtors, and their past payment records. These companies will not buy the invoices if they find the creditability of the debtors to be poor. Furthermore, for companies keeping small profit margins often find it difficult to give the percentage of discount asked by these companies.
Despite these limitations, financial factoring can be a great option for companies facing financial crisis as the generated funds can be of immense help for the day to day functioning of the company.
Get more details from http://www.factorking.com