There’re about $12 trillion worth of trade receivables worldwide arising from the sale of any goods and services in cases where the buyer pays for them not immediately. It is an asset that is available to almost all companies around the world: trade, manufacturing, research, telecommunications. However, in most cases it is a dead weight that doesn’t allow to extract from it the benefit that potentially exists in this amazing asset.
But what makes it so special is the ability to maintain its value even during crisis and recession. Any other asset can lose in value, but not receivables: the debt of a hundred rubles, one hundred yuan, a hundred dollars or a hundred euros will remain so.
Meanwhile, few people are trying to sell their receivables, exchange them for other assets, or mortgage them. And what really stops them? Mainly, the lack of a wide spread of necessary technologies. For example, the technologies required while working with receivables as collateral should include the ability to properly assess the portfolio of receivables as collateral, to monitor its security and quality, and to collect it if necessary. And such technologies already exist, and very soon they will become widespread.
Topic: [ANN] re:factor - New Asset in Global Crypto Economy - page 7. (Read 2056 times)
reserve
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Twitter: @DonNagi8 https://twitter.com/DonNagi8
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Factoring as a financial tool
When it comes to factoring, professionals mostly perceive it simply as one of the many financial tools for solving problems that have arisen. This is not entirely true. Factoring does not just solve the problems that arise because of receivables, but is used to increase the volume of sales of goods and services. Any instrument should be used for its intended purpose and without a thought-out strategy to expand the market — it will not perform its basic functions.
Factoring solves several major issues and risks faced by suppliers. Its main purpose is to solve the lack of financing while expanding the scale of production or supply. If the supplier has enough organizational, production and human resources for this expansion, then factoring almost completely covers all the necessary costs, even if the volumes are increased by several times.
The second problem that often arises in such situation is the inability to manage risks, for example, the risk that the buyer will not pay for the goods or services he is getting. Or the risk of payment delay, which can affect negatively the entire production. Due to factoring, the supplier is always protected from these problems, because the risk management is assumed by the factoring company.
The third problem is lack of human and organizational resources. With the fast growth of accounts receivable, there is an additional burden in resolving problems with accounting, communication with debtors about payments, etc. In this case a factoring company is irreplaceable, because this part of work is completely taken care of by its professional human resources.
But, as many other tools, factoring is often misused. It may become excessive for a company that does not have the opportunity or simply does not want to expand on the market, increases the volume of goods and services supply. This can affect the brand in a positive way, as well as lead to a deterioration in the financial standing of the supplier. Factoring is not a pill for every company, but only for those who really need it.
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