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Factoring companies

Factoring companies

If a business becomes formally insolvent its factoring company will usually take back control over the factored books debts and collect them.

A factoring company is a firm that lends money to a business taking security over some or all of its book debts.

So when a business raises a customer invoice (book debt) the factoring company will very quickly advance funds to the company secured against that invoice.

It can be a good way for the company to receive payment quickly, rather than wait for its customer to pay the invoice but it can also be expensive.

They don’t always have security against all invoices.  Sometimes only some of the book debts are factored and the company is free to deal with the rest of the invoices themselves.

Once a company becomes insolvent the factoring company will take over collection of all of its factored debts (if doesn’t already do so) and termination charges, penalties and interest will usually be added to their debt.

The IP will then deal with collecting in any non-factored book debts.

David Kirk ACA FABRP

David Kirk

David Kirk is a Chartered Accountant and Licensed Insolvency Practitioner.
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