Factoring is a financing procedure that entails the sale of accounts receivables of a company to another party known as a factor at a discounted price. This arrangement allows the seller to get access to instant cash flow that would have been received at a later date. Since this might be a challenging task, many San Antonio factoring companies can help you get what you want. Here are the pros and cons of working with a reliable San Antonio factoring company.
Instant Cash Inflow
This kind of financing solution reduces the cash collection phase. It offers swift access to money by selling a receivable to factors. Sometimes, the accessibility of liquid cash can become a deciding factor for landing a lucrative opportunity or losing it. This cash boost offered by a factoring company is readily accessible for expenditure, securing new orders, or meeting different unforeseen conditions.
Attention Towards Business Growth and Operations
Through the sale of invoices, business owners will have peace of mind since they don’t have to collect money from clients. Resources used in the receivable sector can be channeled towards the running of the business, financial planning, and growth.
Evading Bad Debts
Factoring comes in two faces—one without resources and the one with resources. Without the resource factoring, in the event of bad debts, the loss is endured by the factor. As the seller, you will be under no obligation to the factor once you sell off your receivables.
Swift Arrangement of Cash
Factors offer more funds quickly than banks. San Antonio factoring companies provide faster application, less paperwork, and swift realization of cash as compared to banking firms.
No Collateral Needed
The funds are given out on the grounds of the strength of account receivable and the healthiness of the credit. Unlike overdraft and cash credit, factors don’t need any collateral to be hypothecated. Newer businesses and startups can get advances so long as they have strong receivables.
This a Sale, Not a Loan
Factoring is a sale transaction and not a loan. This means it doesn’t lead to an increase in liabilities of your company, like other forms of finances. So, there are no negative effects on the financial ratio. It entails the exchange of book debts to liquid cash.
Cons of Factoring
Lessening of Profit
The factoring company deducts an agreed-upon discount from the total value of accounts receivable as charges for the services rendered. Furthermore, in some cases, the company might charge interest on the advance made. This means profit is lessened by a huge margin.
Reliability of Client’s Credit
The factoring company evaluates and accesses the credit wellness of the business that owes bill receivables. This is an essential aspect that is outside the seller’s control. A factoring company might refuse to extend the advance because of the low credit ratings of the involved party.
Even though factoring provides a lot of benefits to the seller, it can’t be concluded to be the ideal source of cash for a business. A business owner must carefully evaluate the business requirements and the existing condition that warrants a quick cash requirement.