If all else fails, the factoring company, should be able to repay the Funds in Use by collecting all of the outstanding invoices - the asset that secures the loan.How secure are factoring companies that they will get their money back? There are three negative scenarios when it comes to the debtor paying back the invoice: won’t pay, can’t pay, nothing to pay. At any point in time, the value of the outstanding approved invoices should be greater than the Funds in Use. The loan is repaid when the customer of the client (the debtor), pays the invoice, thus reducing the Funds in Use balance. The “loan” in this case is the Funds in Use balance, which is increased when advances (out-payments) are made to the client in respect to approved invoices assigned to the factoring company. When it comes to factoring / invoice finance, the asset is the outstanding invoices. If you fail to make the repayments, you can wave goodbye to the car! Factoring companies must be aware of the likelihood of fraud occurring and protect themselves through a range of defensive measures. Another example is a hire purchase arrangement to buy a car. If the mortgage holder is unable to repay the mortgage, the lender will take possession of the property. A classic example is a mortgage on a property. If the borrower defaults on the loan repayments, the lender takes possession of the asset and converts it into money to repay the loan. If a loan is secured, there is an underlying asset that is used as collateral for the loan. If a loan is unsecured, there is no underlying asset that the lender can get their hands on, should the borrower default on the repayments. All forms of lending fall into two basic types: secured and unsecured.
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