Understanding Factoring in Finance

Factoring is a financial transaction in which business owners sell their accounts receivables with a considerable discount to a third party company called a factor. A factor will extend credits to business owners based on cash flows, assets, and credit history. Hence, a factor takes into consideration the credit-worthiness of the customers.

Factoring means that the lending company purchases the merchant’s assets namely accounts receivables. Of course, the risks of customers not paying their debts will be shouldered by the lending company. Furthermore, since business owners sell their accounts receivable with a discount, the lending company will gain the discounted amount when the debtors pay in exchange for the risks they have shouldered.

Benefits of Factoring

Factoring conveys a lot of benefits for business owners. Among them is minimizing the risks brought upon by customer debts and other accounts receivable. Since there may be times that merchants need to buy equipment or pay bills but they don’t have enough cash, using factoring services offered by reliable lending companies like Capitol Credit Group is their only option.

Turning accounts receivable into cash and allocating the funds to sustain business operations is a good benefit that can outweigh the discounts from the accounts receivable being sold.

If you have towering accounts receivables on your sleeves, now is the time to turn those sleeping assets into cash. Read more about our factoring services.