Factoring, in one form or another, has been around for thousands of years. Factoring releases the funds locked up in outstanding sales invoices, is a sure-fire way to turn your outstanding debtors into cash. Factoring is frequently used by businesses to improve cash flow. It can also be used to decrease administration expenses.
Cash is king and having a healthy cash flow is the lifeblood of a business. Instead of being strapped for cash for 60 to 90 days after delivering a major order, a business is able to immediately have access to the cash and then plough the money from sales back into the company, enabling it to quickly and efficiently fulfil other outstanding orders and grow. This makes Factoring a viable option to speed up short term cash flow and provide money for expansion.
A Factoring client can typically raise up to 90% (and even as high as 100%) of the value of its unpaid invoices with Factoring, usually within 48 hours. Some Factoring Companies now offer a same day service, Factoring generates immediate working capital. Factoring has the effect of turning a business, giving credit into a business that receives cash almost instantly and best of all it grows in line with sales and makes cash flow predictable. The Factoring balance is available, less a small administration charge, when the customer pays the Factoring Company.
Factoring Single Invoices – Individual Customer Factoring Facility
Recent advances in the Market also mean single invoices or customers can also be catered for with a single Invoice or customer Factoring facility. This provides the ultimate in flexibility and convenience, you can turn Single Invoice or Single Customer (sometimes called “Spot Factoring”) Factoring on or off as you like.
This is an ideal solution for companies that are growing quickly, have seasonal work, or need extra cash flow to purchase inventory, make payroll or invest in marketing. You are able to create an immediate influx of cash without the need to lock the business into a term contract.
Factoring is an effective method of both financing short term cash flow and outsourcing the administration of credit and the demanding task of collections to a Factoring Company. A dedicated Factoring sales ledger and credit management service is also provided with the Factoring service. Working to the customer’s instructions the Factoring Company collects invoices, payments, issues statements etc but ensures good customer relationships are always maintained.
The Benefits of Factoring – Business Receives Cash Almost Instantly
So what are the benefits of Factoring? Businesses gain access to an on-going source of funds that is linked directly to sales and so a smooth predictable cash flow is assured.
Factoring can improve profitability as the business can buy in larger quantities at reduced costs, pay suppliers earlier, and take advantage of early settlement discounts that are available. They could even offer better credit terms to customers when Factoring, allowing the business to attract more profitable business. Additionally, factoring of accounts receivable frees up the considerable time, energy, effort and expense required following up with customers to ensure timely payment and Factoring allows the business to focus on other more productive activities such as selling and the developing new business.
Factoring can also stop bad debts – Factoring Company Assumes The “Credit Risk”
If a debtor fails to pay within a specified period, a Recourse Factoring Company returns the invoice to the customer and the customer either replaces it with another of comparable value or reimburses the advance to the Factoring Company. However, with a Non-Recourse Factoring Company they would guarantee payment to their customer.
Export debtors can be factored too! International Traders Are Increasingly Using Factoring
Companies that want to offer terms to international customers but still want to release the cash tied up in outstanding domestic and or overseas invoices on either a Recourse or Non-Recourse Factoring arrangement can be accommodated too. Many Export Factoring companies will work with a carefully selected foreign Factoring partner, who will in turn become responsible for collecting Factored payments within that country. This eliminates potential problems arising due to language difficulties, law or culture.
The Factoring Company, will still advance up to 90%. As part of a comprehensive Export Factoring service, Export Factoring services can also help companies to avoid the uncertainty of fluctuating exchange rates thanks to specialist currency facilities.
Factoring Provides An Important Source Of Capital – Factoring Financing Growth Opportunities
If you can imagine the benefits of no cash flow restrictions on the growth of your business, you may be a candidate for Factoring.
Factoring provides an important source of capital that is not a loan. Factoring uses outstanding invoices as security and the business decides how much Factoring monies to use. Factoring automatically adjusts to the rate of growth because the invoices trigger the required financing. Factoring, is a swift and simple process to access to cash ensuring growth without diluting equity, incurring debt or bringing in outside equity.
Factoring is considered one of the fastest, most cost effective methods to generate short-term working capital.