Commercial Factoring: New Trend in 2012

Would you like to get funds now from those vendors who owe you money in 60 or 90 days? You can if you use something called commercial factoring. This is a process where a factoring company purchases your invoices and receivables and then provides your business with an advance payment. Factoring eliminates any collection times which can take as long as 30, 60 or even 90 days. An advance payment from a factoring company is usually less a discount fee of about 10 percent of the total invoice. When using commercial factoring, it is important that your customers regularly pay their invoices on time and show good debt records so your factor can collect the receivables.

A number of benefits grace commercial factoring, but basically get immediate cash following shipment, delivery and invoicing, less than 24 hours in some cases, to generate cash much sooner than if you were to collect the money from your vendors alone. A commercial factoring company will conduct a credit analysis on the client you are invoicing to determine the risk before purchasing the invoices. You are entitled to this credit analysis which might assist you in your future business dealings. You are not borrowing any money from the commercial factoring firm; it is cash advanced is based on your client's credit status, not yours.

Factoring comes in handy if a company has a payment crisis and is in urgent need of cash. It is simply a financial transaction where companies sell their invoices to the factoring business at a discounted price. Factoring has three parties -- the company, or seller, the customer or debtor, and the factoring company. This transaction is beneficial for both of the parties -- the factoring company because the company gets the cash, purchases the bill at a discounted price and then recovers the whole amount from the seller. This is beneficial for both the parties. This service is very beneficial for newly emerging businesses because of the extra cash for the set up and expansion. In this case the factor is responsible for the collection of payment.

Many business owners qualify for factoring - even young companies without an established track record, those who may have a tax lien, and even those who have declared Chapter 11 bankruptcy. The advantages of commercial factoring include the fact that you can stay current on your company's employee payroll, and on all your bills, plus you basically gain working capital without diluting equity or adding debt.

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