Factoring is a method used by some companies to obtain cash. Some companies take into account accounts when the company`s available stock is not sufficient to meet current obligations and cover its other liquidity needs, such as. B new contracts or contracts; However, in other sectors, such as textiles or clothing, financially sound companies take their accounts into account simply because this is the historical method of financing. Using factoring to obtain the cash needed to meet a company`s immediate cash needs will allow the business to maintain a smaller stock of cash. By reducing the size of its cash holdings, more money will be made available to invest in the growth of the company. The origins of factoring lie in trade finance, especially international trade. It is said that factoring has its origin in ancient Mesopotamian culture, with the rules of factoring being maintained in the Code of Hammurabi. [22] Small entrepreneurs who apply to an invoice factoring entity benefit from a factoring agreement that specifies their rates and conditions. This Agreement should describe the agreed rates, conditions and conditions that must be met throughout the factoring relationship. Factoring agreements typically last between one and three years, and then they can be renegotiated and renewed with the postman. Factoring is a daily occurrence in the construction industry due to the long payment cycles that can span 120 days and beyond. However, the construction industry has characteristics that are risky for factoring companies.

Due to the risks and exposure of pawn mechanics, the risk of paid-when-paid conditions, the existence of progress notes, the use of holdbacks, and exposure to business cycles, most “generalist” factoring companies avoid construction requirements altogether. This has created another niche of factoring companies specializing in construction claims. [36] 1. They decide which accounts will be considered, how many invoices will be sent and when they will be sent. If you fully understand your customers` payment methods, you can keep an invoice closer to the expected payment data to reduce your factoring costs. First, it is likely that your company will receive a letter of offer (it is not a contract) from the postman that contains some, but not all, terms and conditions that may be included in the factoring agreement. This letter of offer usually requires your signature and a deposit. The factor will then send you the proposed factoring documents, including the factoring agreement, personal guarantees (if the factor advances), a secretarial or management certificate (depending on whether your company is a limited liability company or a limited liability company), a proposed communication to your customers that your company`s receivables have been attributed to the postman and various related documents and agreements. Factoring provides a business with a convenient way to have its receivables insured and recovered and to obtain financing for the operation of its operations.

Be sure to carefully check all the provisions of the factoring agreement, first on your own, and then with experienced clothing advisors. Spot factoring or individual account discount is an alternative to the “Whole Ledger” and allows a company to factor a single invoice. The added flexibility for the business and the lack of predictable volume and minimum monthly requirements for factoring providers means that spot factoring transactions typically come with a cost premium. . . .