Two Takes on an Age-Old Style of Cash-Flow-Oriented Financing

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Just about every business owner will struggle with cash flow from time to time, and finding suitable solutions to such problems can make or break a given company. In some cases, cash flow issues will be such that seeking out a loan from a bank will make sense, at least for those businesses with the backgrounds and means to obtain this kind of financing. In others, asking investors to pitch in can help, although pleas like these can carry a heavy cost of their own.

When a smaller company’s financial situation is fundamentally sound, on the other hand, leveraging some of the outstanding invoices that represent the payments it is owed will often make the most sense of all. Specialized service providers known as “factors” will do exactly this for their clients, providing cash up front in exchange for the right to collect on such obligations.

While not every business owner will be familiar with this style of financing, it has a very long history behind it. In fact, the ancient Code of Hammurabi contains regulations covering a type of service recognizable as factoring, with people having made use of it throughout the many centuries since. Naturally enough, the modern form of the service does come with distinctive features and options of its own, thanks to so many years of evolution and refinement turning it into something even more useful and appealing to all involved.

For one thing, today’s factors will generally offer at least one of two different versions of the service. Some prefer arrangements whereby they retain recourse to collecting on invoices with the party that originally handed them over. In case the original recipient of an invoice fails to pay up, this will mean that the client can be forced to return the advance and retake possession of the obligation.

On the other hand, factors who specialize in one-off, on-the-spot service mostly gravitate toward a style of arrangement whereby no recourse remains after the deal is concluded. In that case, clients can rest easy in knowing that they cash they have received remains theirs with no further obligations. While this style of the service tends to be more expensive, it is one whose price often turns out to be worth paying.