When you factor an invoice, you have not created a loan or a liability. After you receive the advance on an invoice, the customer pays the factoring company the total amount due. The factoring company then remits the amount of the invoice less the advance and factoring fee to the client. At this point, the transaction is complete. Keeping the transaction off the balance sheet is an important benefit of factoring, as it allows the company the greater chance of being qualified for other financing since the balance sheet has been properly maintained.
Using a bank credit line in a manner that does not enable frequent pay downs will ultimately result in a transition to term loan which does not look good from the banks standpoint and clearly makes it harder to borrow more in the future.
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Kent Harlan, CPA
Ozarks Capital Funding, LLC
www.ocflink.com
kenth@ocflink.com
(417) 849-7394
March 30, 2008
Factoring Offers Off Balance Sheet Financing
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6 comments:
very informative post. thanks for sharing such post.
Accounts receivable financing is a necessity for companies that are always facing a cash crunch,
and they cannot balance the amount of expenditure to the amount of income.
In order for you to understand that you can get the required amount of cash flow directed to you at any moment,
you must be able to give your invoice as collateral in case you would want to get ready money with the help of accounts receivable financing.
Great job..
Happy to see your post..
The finance or factoring company provides quick money to your business in this transaction. Of course, the value assigned to the receivable depends on a number of things, such as the credit rating of the invoiced customer or age of the receivable.
Source: http://www.accutraccapital.com/
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