The financing of customer accounts is a type of asset financing arrangement in which the guarantee in a financing contract is used as receivables, which is money owned by customers. The amount that a company receives is equal to a reduced value of declared receivables. How old the receivables can strongly affect the amount that a company will get. This means that older receivables, the less the society has reached. This is also called Factoring.
In addition, AR Factorization is useful for freeing capital that are blocked in customer accounts. It is also responsible for the transfer of default risk associated with customer accounts to the financing company; The risk transfer act can help the Company use funding, will then focus on current business activities instead of collecting receivables.
There are three parties directly involved: the one who selling the debtor and the factor. The debt is the financial asset generated in relation to the debtor’s liability to make a payment due to the seller, as for the goods sold or the work done. One or more of the invoices to receive are then sold by the seller at a reduced tariff party which is a specialized financial institution (AKA the factor) which is more often than not, in advance on the factoring to acquire more money. What we call advanced factoring, is the factor that provides funding to the seller or the owner of the company in a form of funding that is usually 70 to 85% of the price of purchases, With the balance of the purchase price paid, the commission which is the net of the expected costs of the factor and other charges collected from the debtor or the client.
The sale of receivables mainly transfers its appropriation for factoring loans. As a result, the factor gets all rights related to receivables. As a result, the factor wins the right to receive payments made by the debtor for the amount of the invoice. And, in factoring without recourse, he should bear the loss if the debtor will not be able to pay the amount of the invoice with only the reason that the debtor is incapable financially. Most of the time, the sale of the debt will be notified to the debtor of the account, while the factor will be the one who invoices the debtor and makes all the collections; However, non-notification factoring is also occurring, where the seller collects accounts sold to the factor, acting as a factor agent.
Since the loan guidelines are tightened by banks, business owners need access to the rolling capital to develop their activities. An option as customer funding can help corporate owners along the way.