What Do Factors Do
Released on = May 11, 2007, 8:08 am
Press Release Author = Webmaster
Industry = Law
Press Release Summary = The term \'factors\' might be a little confusing to the layperson. Typically, the word is used in the sense of causative factors that lead to some result. In the financial world, however, factors are like bankers, a class of financiers.
Factors buy future payments from present recipients and pay them a discounted sum as the price of the payments. They then collect the payments direct from the payers in due time. This works because the original recipient is legally able to assign the right to receive payment to the factor.
Press Release Body = The term \'factors\' might be a little confusing to the layperson. Typically, the word is used in the sense of causative factors that lead to some result. In the financial world, however, factors are like bankers, a class of financiers. Factors buy future payments from present recipients and pay them a discounted sum as the price of the payments. They then collect the payments direct from the payers in due time. This works because the original recipient is legally able to assign the right to receive payment to the factor.
Traditionally, factors bought \'accounts receivable\' from business entities that sold on credit. The business might have to give credit to increase sales volumes. However, the business could do with immediate cash for its operations. In such a situation, the accounts receivable were assigned to a factoring company that paid a discounted sum as immediate payment.
With the increasing demand from structured settlement recipients for immediate cash, a new class of factors, known as structured settlement factors, have appeared in the market. These factors buy future payments under such settlements and pay the recipients a sum based on the \'present value\' of those payments.
What Do Discounting and Present Value Mean?
The terms \'discounting\' and \'present value\' relate to the \'time value\' of money. Money in hand today has more value than the same amount received at a future date. If you have 1000 dollars in hand now, and invest it in a security that pays 6% interest every quarter, your 1000 dollars would become 1061.36 dollars at the end of one year. It is assumed that you don\'t take out the interest, instead allowing it to be added to the principal at the end of the quarter. Next quarter\'s interest would then be computed on this interest-added principal.
The above case is an example of compound interest. Compound interest could make even small sums into big sums over the course of many years. Discounting is always done at a particular rate of interest. The discounted value of a future payment is what we call present value. In the above example, if you receive 1061.36 dollars at the end of one year, its present value would be 1000 dollars. There are formulae, and readymade tables, to compute present values of sums received at any future date. The structured settlement factor discounts each of the future payments that you are selling, and total them up to arrive at the present value of the payments. They would pay you a sum based on this present value.
Can You Just Go to A Factor and Sell Your Structured Settlement?
Unfortunately, the process of accelerating your cash receipts by selling future payments is not a simple one. Structured settlements are considered socially more desirable because people tend to dissipate large sums in wasteful ways. Hence, laws have made it a complicated process to accelerate the payments.
Typically, you would need permission from a court to assign your future payments to a third party. Before giving such permission, the court would look at all relevant aspects and determine whether the sale is in your best interests. The court process takes a little time.
There would also be a lot of negotiations between you and the structured settlement factor. You seek the help of your attorney for the negotiation. In some states, it is mandatory to involve an attorney. These too take some time. Assuming everything goes well, you could get your money in about four to six weeks.
Chances of court approval and quick conclusion are brightened if you deal with an experienced structured settlement factor, who deals with you ethically and up front.
For more read at http://www.structuredsettlements.bz
Web Site = http://www.structuredsettlements.bz
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