Financing companies can step in and take over the accounts receivables of a company who no longer wants to wait to be paid on their receivables.
Financing companies, who are sometimes called Factoring Companies or Factors, will pay about 75% of the amount due to companies who want to offload or outsource their Receivables. The factoring company will then take over the task of collections, and will transfer most of the money received back to the original company, after their fees have been deducted from the proceeds.
This arrangement is primarily a loan arrangement, where the original company borrows a lump sum from the factoring company because they need the liquidity. The accounts receivable are the collateral for the arrangement.
Companies can sometimes make use of Factoring arrangements if other forms of loans are not advantageous or available to them at the time. This can give the arrangement a somewhat negative connotation, as if the factoring company is giving the borrowing company a payday-advance loan. Still, many reputable companies make use of factoring services from time to time.
Leveraged loans are typically targeted at companies that already have a significant amount of debt and may be limited in their options to access capital elsewhere.
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