Adjusted balance

What is Adjusted Balance?

The adjusted balance is a vital term in the world of financial factoring. It refers to the amount remaining after adjustments have been made on the original account balance. In factoring, this comes into play when a business sells its invoices to a factor. Factors will pay the business a percentage of the invoice value. The adjusted balance is what remains after fees and advances are accounted for.

How Adjusted Balance Works in Factoring

Imagine a company called ABC Logistics that has sold $100,000 worth of invoices to a factoring company. The factoring company gives an advance of 80%, which is $80,000. Now, let's say the factoring fee is 2% per month. If ABC Logistics uses this service for one month, it will owe $2,000 in fees. The adjusted balance of the invoice value after the month would then be $98,000 ($100,000 - $2,000 fee).

Why Adjusted Balance Matters

Understanding the adjusted balance is crucial. This figure shows the true money a business will receive from factoring. It influences financial planning and decision-making. A lower adjusted balance could signal higher costs of financing, whereas a higher balance means more capital to work with.

Adjusted Balance and Financial Health

A healthy adjusted balance supports company growth. It ensures that companies don't face cash shortages and can reinvest in operations. It also helps a business maintain good credit as they can continue to pay their bills on time, supported by a balanced cash flow.

Key Takeaways for Adjusted Balance

In summary, the adjusted balance in financial factoring is the actual amount credited to the company after the factoring company calculates advances and fees. Businesses should keep a close eye on it to manage their cash flow effectively. Always check the adjusted balance to measure the cost of factoring against the immediate cash flow benefits it provides.