What is business factoring?

What is business factoring?

Business Factoring in the UK is a financial service for cash hungry businesses whereby a business sells its unpaid invoices to a third party (called a factor) at a discount in exchange for upfront money of up to 95% in value of the invoice with which to finance continued business.

Disadvantages of business factoring

In some industries there is a perception that a business that uses a business factoring facility to factor its debts is suffering financial problems.

Why should a business consider business factoring?

Many businesses in the UK have Cash Flow problems. A business may suffer from seasonal variations in business as a business may need to both maintain a cash balance on hand, and to use such methods as factoring, in order to enable them to cover their short term cash needs in those periods in which these needs exceed the cash flow.

How much in £ should the factoring company offer a business with regards to business factoring?

The businesses need for cash will determine the size of the cash balance a business will tend to hold and will therefore have a direct result on its business factoring facility.

Advantages of business factoring

• If a businesses cash flow decreases drastically, the business will find it needs large amounts of cash from can rely on a business factor facility to cover its obligations during this cash hungry period
• A business using a business factoring facility always sees a clear advantage in trading against the costs associated with the use of factoring.
• A business that uses a business factoring facility always has a cash balance to pay for ongoing business costs.
• For small businesses, if they cannot get a business loan or overdraft then they are faced with prospect of slow growth.
• Business factoring is excellent for businesses with a small spread between the revenue from a sale and the cost of a sale.
• A good business factoring facility can save a fundamentally good business whose management made significant business mistakes or been affected by the recession.
• A business suffering from insolvency can use a business factoring facility to aid a business turnaround.