What are the Rates of Return for the Factoring of Accounts Receivable?

Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running
Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running

Is the factoring of invoices an investment of some kind? What are the rates of return for the factoring of accounts receivable?

“Rates of return” typically mean the loss or gain made in an investment over time, which is stated as the percentage of the increase (or lack of it), compared to the original amount of investment.

In invoice factoring, a.k.a. the factoring of accounts receivable, there is no real investment made on the part of their company that owns the invoices. If there is an investment made, or more accurately, if any kind of investment is being made during the transaction, it is on the part of the factoring company.

Sounds Greek? Let’s take a look at the smaller details further, to arrive at the bigger picture.

What Factoring Entails

At its most basic, there are three elements necessary for factoring to take place. First, a company with invoices or still uncollected payments for goods and services that have already been purchased. Second, a Factor or factoring company. Third, an agreement between both, that the invoices will be sold by the first company, and that the second company will buy those invoices, at a discount.

That discount can be said to be the “commission” or earnings of the factoring company out of the transaction. So, in a sense, that can be considered as the  rates of return for the factoring of accounts receivable, but only on the part of the factoring company.

But what about the company that owns the invoices. What do they get out of the transaction?

Benefits of Factoring

When a company is strapped for cash, many processes and systems needed to run the business get adversely affected. From administration and operations, to advertising, marketing and sales, the lack of readily available cash makes a strong impact that could hinder business efficiency and productivity. Without a source of funds coming in, cash flow will become stagnant or blocked.

That’s where the beauty and usefulness of factoring comes in. Instead of having to wait for invoices to be collected (which can take months or even years, depending on the economic climate and the financial state of the customers to whom the invoices were made), a company can easily and readily have access to their required cash through a factoring agreement.

Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running.  In essence, then, that could be the rates of return for the factoring of accounts receivable, on the part of the company who sold the invoices.

If you’d like more information on how to get the most out of a factoring agreement, get in touch with Neebo Capital. Since the discounts are dependent on which factoring company you are dealing with, it’s best to deal with professionals such as those from Neebo Capital.

What are the Rates of Return for the Factoring of Accounts Receivable?

 

Is the factoring of invoices an investment of some kind? What are the rates of return for the factoring of accounts receivable?

 

“Rates of return” typically mean the loss or gain made in an investment over time, which is stated as the percentage of the increase (or lack of it), compared to the original amount of investment.

 

In invoice factoring, a.k.a. the factoring of accounts receivable, there is no real investment made on the part of their company that owns the invoices. If there is an investment made, or more accurately, if any kind of investment is being made during the transaction, it is on the part of the factoring company.

 

Sounds Greek? Let’s take a look at the smaller details further, to arrive at the bigger picture.

 

What Factoring Entails

 

At its most basic, there are three elements necessary for factoring to take place. First, a company with invoices or still uncollected payments for goods and services that have already been purchased. Second, a Factor or factoring company. Third, an agreement between both, that the invoices will be sold by the first company, and that the second company will buy those invoices, at a discount.

 

That discount can be said to be the “commission” or earnings of the factoring company out of the transaction. So, in a sense, that can be considered as the  rates of return for the factoring of accounts receivable, but only on the part of the factoring company.

 

But what about the company that owns the invoices. What do they get out of the transaction?

 

Benefits of Factoring

 

When a company is strapped for cash, many processes and systems needed to run the business get adversely affected. From administration and operations, to advertising, marketing and sales, the lack of readily available cash makes a strong impact that could hinder business efficiency and productivity. Without a source of funds coming in, cash flow will become stagnant or blocked.

 

That’s where the beauty and usefulness of factoring comes in. Instead of having to wait for invoices to be collected (which can take months or even years, depending on the economic climate and the financial state of the customers to whom the invoices were made), a company can easily and readily have access to their required cash through a factoring agreement.

 

Factoring saves times, effort, and in the long run, can even save money for a company. That’s because even if the original worth of the invoices may become anywhere from 85% to 97% due to the discount applied by the factoring company, there could be greater savings realized when the cash from the factoring is used to keep operations running.  In essence, then, that could be the rates of return for the factoring of accounts receivable, on the part of the company who sold the invoices.

 

If you’d like more information on how to get the most out of a factoring agreement, get in touch with Neebo Capital. Since the discounts are dependent on which factoring company you are dealing with, it’s best to deal with professionals such as those from Neebo Capital.

Published by

Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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