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Factoring is when a company that owes money capitalises and transfers its balances without going through the complicated borrowing process to cover expenses. This can save a lot of money for your struggling company—if you find a company granted to you previously, instead of debt relief, they’ll allow you to borrow this balance at interest rates as low as 1%. That’s where debtor finance comes in.
What is Debtor Factoring?
Debtor factoring is a type of debt relief where a company buys the debt from the debtor at a discount and pays the debt off in full. This allows the debtor to keep their home, car, and other assets, which can help during this difficult time. There are several things you need to consider before taking on debtor factoring:
-Whether you have sufficient credit: Many companies will only work with borrowers with strong credit ratings.
– The amount of money you can afford to pay: Factoring companies typically require a down payment of around 10%.
– The terms of the offer: Some companies will offer lump-sum payments while others may offer monthly instalments. It is important to get all the details in writing so there are no surprises down the road.
– Not all companies offer debtor factoring: Make sure to research carefully before choosing a provider.
– Beware of scams: Many unscrupulous companies masquerade as legitimate factoring providers to lure people in with high-interest rates. Be sure to do your homework before making any decisions.
Pros of debtor factoring include:
1. A low-interest debt can be turned into a manageable amount with manageable monthly payments.
2. The company can continue its business while working to pay off the debt.
3. It can receive up to 95 per cent of the face value of the debt, which is more than any traditional loan option available.
4. No money is required upfront, which is advantageous over other loan options.
5. The company retains full ownership and control of the debt, which means it can decide how to pay off the debt without interference from outside parties.
6. The benefits of debtor factoring are not limited to businesses with high-interest debts; any company with high liabilities can qualify for debtor factoring if it meets the qualifications listed above.
Conclusion
Debtor factoring refers to a financial service offered by companies to help struggling businesses reduce their debt burden. The service typically involves the company lending money to the debtor at a favourable interest rate and then collecting monthly payments from the debtor until the debt is paid off. Debtor factoring is a valuable solution for businesses facing financial difficulties. If you’re thinking about using this service, consult with expert debtor finance first.
