Abstract:
Factoring contract is a new phenomenon, compared to earlier forms of commerce in juridical circulation. Factoring is a method used by a firm to obtain cash when available cash balance, held by the firm, is insufficient to meet current obligations, and accommodate its other cash needs, such as new orders or contracts. The use of factoring to obtain the cash, needed to accommodate the firm’s immediate cash needs, will allow the firm to maintain a smaller ongoing cash balance. By reducing the size of its cash balances, more money becomes available for investment in the firm’s growth. A company sells its invoices at discount to their face value when it calculates that it will be better off proceeding to bolster its own growth than it would be by effectively functioning as its “customer’s bank”. Many businesses have cash flow that varies. A business might have a relatively large cash flow in one period, as well as a relatively small cash flow in another period. Because of this, firms find it necessary to both keep a cash balance on hand, and use such methods as factoring, in order to enable them to cover their short term cash needs in those periods in which these needs exceed cash flow.
