An article recently appreared in the Wall Street Journal indicating that compies are selling their receivables at a record rate. Why are companies selling their receivables?
When a company sells its receivables to a finance company, it is no different than a retail merchant who sells to consumers on credit cards. The merchant is essentially selling the receivable to the credit card company who pays the merchant the cash within 2 days and then takes the responsibility for collecting the payment from the consumer. The credit card company acts as a factor for the retail merchant. In fact, the credit card can be considered a "factoring card."
<br>The finance company will typically charge 3-5% of the invoice to buy the invoice from the company. This can be a small price to pay for getting the cash early and for letting the finance company take care of tracking and collecting the receivables. In fact, even after paying the finance company that fee, your company can easily come out ahead because:
<br>(1) There can be ...
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