The Advantages of Consumer Factoring

Consumer factoring might sound like a perplexing business technique involving years of practice, but it’s really quite simple and an effective means of giving businesses a needed boost. Consumer factoring of a company’s receivables involves selling receivables to a third-party for immediate payment for a small fee. The third party takes the receipt and collects from the parent company’s client. For instance, in many cases payment for services rendered might take up to 90 days to be fully paid. So if a client owes $10,000, the company has to wait 90 days before reinvesting that money to build the business. Consumer factoring involves selling that $10,000 receivable to a third party for a small fee and getting a portion of that $10,000 right away. It’s all about cash flow. But many companies are opening up to the possibility of credit accounts for their clients. It’s smart because it opens up a new stream of revenue, but it also delays payment and causes some cash flow issues. Some companies will establish a collecting receivables department, often attached to their accounting department. But collecting outstanding accounts can be a time-consuming effort that should be handled by a professional who knows how to collect ethically and without damaging the brand. Consumer factoring takes the whole collections component out of the equation. Once a third-party is handling all receivables, the company often sees a savings and more productivity among the employees who are now working on making more sales rather than chasing down debtors. Some companies get saddled with debt as they take out bank loans to attempt to grow their business. Instead of taking out loans, they could sell their receivables and never worry about paying interest on bank loans. Bank loans are not only costly, they’re time consuming for your business and require a lot of paperwork that is shuffle around. Smart business owners know that avoiding debt will boost their standing with private investment groups. Smart investors know to avoid companies with cash flow issues and tons of debt. Consumer factoring is a perfect option for a company with high accounts receivable balances. Financing companies like University Guardian Acceptance (UGA) take over the accounts receivable task while giving their clients cash up front. Companies no longer need a billing department when they contract with a third-party agency that offers consumer factoring.