Is Invoice Factoring Right for Your Business?
Factoring is a form of financial service where cash is gotten from a business owner for the invoices his client receives regarding the services and goods supplied to them. Factoring is also known as invoice discounting,
Most exporters use factoring to increase their revenue. For instance, factoring in Quebec helps businesses grow continuously by providing these financial services.
Below is a guide to help you understand the nature of factoring and how essential a factor is in a factoring company.
Roles of a Factor
There are various roles a factor performs for his client. These roles include:
- Advisory Functions
Sometimes clients receive advisory services from the factor since a factor is well versed with matters related to economic issues and trends. Clients thus get advised accordingly regarding their respective businesses since they involve them in how their businesses are developing.
Companies offering factoring in Quebec ensure they hire highly experienced individuals in manufacturing and can thus advise clients regarding machinery issues, analyzing workload, and other aspects of their customer’s businesses.
- Handling Sales Ledger
A factor shoulders the responsibility of ensuring the sales ledger of their clients’ companies is maintained. The client receives a copy of the invoice directed to the factor. There is no need for the client to handle sales ledgers for their customers.
The factor gives a repost to his clients regarding the receivables” status based on the ledger. The factor may produce important information as part of the package, plus receive payment receipts from the customers.
- Collects Accounts Receivables
In a factoring agreement, the responsibility of collecting clients’ receivables lies on the factor. This factor relieves the clients of collecting debts, thus allowing them to focus on marketing, production, and various aspects of the company.
Through the help of trained workers and the support they receive from infrastructural companies, measures are taken to follow up to ensure the debtors pay their dues on time.
The debtors usually respond to reminders or demands from a factor since they would not like to destroy their company’s reputation through a credit institution.
- Control and Protect Credit
Another service a factor provides is controlling and protecting credit. The factor maintains important records with information regarding the customers and how they’ve been making their payments, and thus, he can give clients advice on the credit extensions.
The customers are aware of their credit limits since they are established by the factor. This aspect helps them stay aware and accept their receivables with no recourse. This service assists clients to increase their confidence in handling substantial businesses.
The client receives credit protection through the factor when he buys from him with no recourse and evades the risks involved when payments are not cleared by the customers.
Factoring plays an essential in improving the stability of businesses, thus boosting the financial sector. It should also be noted that factoring is not viewed as a loan since the company receives the accounts for the funds with no restrictions on the use.
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