Domestic Factoring An Effective Cash & Debt Management Tool

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Domestic Factoring – An Effective Cash & Debt Management Tool The biggest worry for any business or company is the cash flow, especially for small and medium enterprises. These businesses usually suffer due to long payment periods that stretch 60 to 90 days from the delivery of the products or services. Banks are reluctant to extend stand alone bill discounting facility , and hence these businesses are concerned about the working capital and for their day-to-day operations. To provide them respite from the cash flow worries, a financial product called factoring is available through which they can receive immediate cash. Companies or businesses sell their accounts receivables to a factor (financial institution) to avail prepayment Domestic factoring is a financial service in which a business entity assigns its trade receivables to a financial institution called factor to raise immediate funds. The business generates invoices after making the sale of goods or services and then assign the receivables to a factor. The factor prepays the invoices up to 75 to 80 percent of the invoice value . The remaining percentage of the invoice value is paid after the factor receives the payment from the buyer

Domestic Factoring Advantages    

Smooth cash flow and liquidity in the business Improved cash flow helps the business to timely pay its creditors and administrative expenses Able to offer competitive credit terms to buyers without cash flow constraints Receivable administration or collection cost of the business is saved


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