Accounting Tips For You

AR Factoring Step by Step

Have you ever felt frustrated because even when you have good customers, it takes a long time to collect and you are always missing opportunities to make new business?� Does it take too long to recover your accounts receivables to pay your suppliers? If you answered yes to any of the questions then surely you will be interested in this collaboration.

AR factoring is a financial instrument that allows your company to sell the bills that your customers owe you in concept of accounts receivables at a discount in exchange for a payment. The financial institution will give you money on the basis of your accounts receivables and they would manage your portfolio for you.

Let us explain to you step by step how AR factoring works. The first thing your company needs to do is determine what bills of what customers the factoring company will collect for you. Those bills belong to customers that had a period (eg. 90 days) to pay back and have not done it. The AR Factoring firm you choose will have agents called Factors look at your case and will examine your financial stability and establish whether they can collect from your customers.

They will conclude whether they will take your case and will determine a discount rate for your company. If you consider that this agreement will benefit your cash flow, your next step is to fill out the paperwork and then the AR factoring company will deposit an amount to your bank account that corresponds to a percentage of your accounts receivables.

AR Factorings main goal is to increase the working capital by allowing you to have more available cash flow in order for you to face your commitments or to increase your investments. If you are in the exporting business, for example, and you predict the newest game console will be the hit during the upcoming holidays. In order for you to invest in the large number of new video game consoles that you expect to sell, you need to get credit from your supplier. However, this supplier does not want to give you credit and expect full payment of his merchandise. AR Factoring will allow you to buy from these kinds of suppliers, because you would have working capital that you can use to purchase the products you need.

AR factoring is a legal and widely accepted tool. However, you need to be aware of the cost that it implies to your business. We suggest that if you decide to use factoring, you can transfer the costs to your customers down to a certain percentage without over charging them too much.

Wade Henderson – very Professional – 15 yrs in the Business Finance Field – reputation for getting the deal done.
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