Advantages and disadvantages of small business factoring

Advantages and disadvantages of small business factoring

In the UK factoring and other forms of finance have to be considered by many small business owners with customers that pay too slowly. Please note that small business factoring has become so common that many banks are advising its customers to use factoring to help with small businesses grow and stay competitive.

Advantages of small business factoring

  • As a small business owner would expect it can be stressful dealing with cash flow problems. A factoring facility provides immediate cash advances based on invoices raised, this means the business will always have cash in the bank.
  • Small business factoring offers alternative funding to small business owners who rely too much on overdrafts and business loans.
  • The small business owner must have been in business for six months to a year to qualify for an overdraft or small business loan. Please note that a factoring facility is available to business start-ups from day one of trading.
  • The small business owner often lives in fear of its bank withdrawing its overdraft facility. This problem would be alleviated with a small business factoring facilty.
  • Cash is the most important factor for a business of any size factoring guarantees cash will never run out as long the invoices keep being raised.
  • Factoring will keep a small business viable by making sure crown taxes and payroll runs can always be met.
  • A good factoring facility will make cash flow more predictable.

Disadvantges of small business factoring

  • You can’t use factoring if you are a retailer
  • You can’t use factoring if you are a cash trader
  • factoring is only for business to business trades
  • factoring companies are usually more aggressive at collecting debts and this may upset customers
  • Factoring companies can be choosy and decide not to factor all invoices
  • Factoring has many cost implications and means profit margins diminish

Call 0800 597 4757 for advice and detailed explanations on the advantages and disadvantages of small business factoring. has helped thousands of small business owners in finding reputable lenders in order to compare offers for small business factoring.

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