What is Factoring based on assets?
Factoring based on assets occurs when the company sells its assets of factoring companies in return for immediate payment. In most cases, the assets of the invoice for payment from other companies that have received goods from the business are without making an immediate payment. The factoring company will strengthen a large percentage of the invoice for the company and then pay the rest, minus a small discount fee as soon as they receive the full payment from the debtor. Using Factoring based on assets, businesses can provide stable cash flow without having to withstand credit inspections related to the application for a business loan.
It is essential for the company to find ways to generate cash to maintain everyday operations. This cash may be difficult to come, especially if it has established credit relations with other companies with whom it does. One way to avoid the business problems with long -related cash flows with a long span of timeutween delivery of goods and debtors' payments is factoringBased on assets that include a third -party factoring company that proceeds in cash and collects payments.
As an example of how Factoring based on assets, imagine that the company A sells B for $ 2,000 in USD (USD) and B plans to pay on the basis of credit agreement with A. Company A then contacts a factoring company that agrees to purchase an invoice and pays 80 percent of the amount. The rest will be held in the booking by a Factoring Company until it can be able to collect payment from B. After the payment is received, the factoring company will pay the remaining amount of the company A, a minus discount fee of 5 percent.
This means that the company and receive an immediate payment of $ 1,600 from a factoring company. Once the company B pays off the factoring company, the company and Will receive 300USD USD more, which is the amount of the reserve minus a 5 % discount fee. Factoring agency will receive a discount fee that will reach $ 100 for its services.
How many factoring companies are proceeding in an agreement on assets based on assets and what fees they will charge depend on several factors. The factoring company is likely to check the participation of the company's debtors and the volume of the business that the Company carries out before determining fees. In addition, the nature of the agreement can set fees and rates. Specifically, if the company is not responsible for the failure of its debtors' loans, the fees charged by the factoring company will be relatively high.