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factoring receivables

I need to know the answers to these questions.

1. Explain the advantages and disadvantages to the firm of factoring its receivables. What is the difference between pledging and factoring? Which of these two is cheaper for the company?

2. What main points of analysis will a bank perform on a loan application?

3. Is an increase in the collection period necessarily bad? Explain.

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1. Explain the advantages and disadvantages to the firm of factoring its receivables. What is the difference between pledging and factoring? Which of these two is cheaper for the company?

There are a number of advantages to factoring your receivables. One big reason is that it gives you the ability to immediately access cash owed to your company. For some businesses, this minimizes the need to incur debt for operations while waiting for invoices to be paid.

Another advantage of factoring is that it provides a smoother, more consistent cash flow. Instead of wondering when you will receive payment from your customers, you can accurately predict when you will receive payment based on the terms of your relationship with the factoring receivable company.

Finally, factoring eliminates the need for you to do your own collections. Factoring receivable companies are run by professionals who specialize in collecting and tracking invoices. This translates into an overall reduction in the amount of bad debts and fewer headaches for your business.

However, factoring also has a downside - cost. Factoring is not cheap. The percentage that you pay the factoring receivable company ultimately costs more than you would pay for a short-term commercial loan. For that reason, factoring should never be seen as a long-term solution, but rather as a way to generate quick cash when you really need it, most often ...

Solution Summary

Factoring of Receiveables (Working Capital)

$2.19