Advantages and Disadvantages of Factoring & Invoice Discounting

Advantages and Disadvantages of Factoring & Invoice Discounting

Advantages

  • Immediate Cash without consideration of a business’s credit rating.
  • No long term contracts, you can discount as much or as little as required within agreed limits. Unlike overdrafts the facility does not need to be renegotiated when increased.
  • No other security required.
  • Factoring provides the company with professional credit collection services.
  • Factoring reduces Overheads via reduced credit department offsetting the costs and can make the actual costs near to zero.
  • Increased cash flow, increasing working capital, eliminating overdrafts, allows bills, taxes to be paid on time.
  • Off balance sheet financing improves credit rating allowing further borrowing if required.
  • Cash on hand allows opportunities that present themselves to be taken.

Disadvantages

  • Service / interest charge need to be compared against traditional banking facilities.
  • Some types of Invoice Discounting i.e. factoring is disclosed to your customer so you need to have confidence the factoring company is courteous & diplomatic with your customer as you would be.
  • Watch out for term of contract and notice periods. Termination requires full repayment of funds.