Does My Business Suit Factoring?

by Factoring Companies on June 23, 2010

If you have never considered Factoring as a solution to some of your businesses cash flow issues, maybe it is time to look into it.

The first thing you need to decide on, is whether Invoice Discounting or Factoring would be suitable for your business.

Businesses both small and large are using Factoring as the way to solve some of their immediate cash flow issues.

What is factoring or invoice discounting?

In a nutshell, Factoring or another commonly used method known as Invoice Discounting are both terms for saying that you are going to borrow money on the worth of your sales ledger.

More and more companies are seeking this method of finance, so there are more Factoring providers starting to appear on the market.

How long do you have to be trading to be picked up by a Factoring company?

The best part about Factoring that makes it helpful for some is that you do not have to be trading for a long time.

Although this helps, the majority of Factors will now advance money to companies that have been trading for under twelve months. The recruitment industry seems to be one of the favoured industries in the Factoring world. In this particular situation the clients may not pay for several weeks after Factoring, but the temp staff members are paid each week.

Is this the right choice for my business?

The most ideal situation for Factoring is if you have a small management team. Factoring will allow them to use their time in other areas instead of having to always be trying to collect money from customers.

Small business may find it easier to have their sales ledgers taken care of by a Factor as opposed to having to employ more people that you could use in other areas if your company.

Is my cash flow strong enough to factor?

Many companies feel that they may not meet the requirements for Factoring, well; you may be surprised to know that the requirements are not all that stringent to meet. All you really have to be sure of is that you have raised invoices regularly. There is no need for a large turnover, A1 credit or a strong trading history.

What needs to be done?

All you need to do is send an invoice to you customer. You have to give the Factor a legal assignment that you are selling your ledger debts. This must be added to your invoices, generally by putting a sticker on them. The customer will know that you are going to be using a Factor.

Then you send all the copies to the Factor, the Factor pays a percentage of the invoice. Generally up to 90% and it will be paid according to the terms set by you and the Factor. The factor will help run your ledger, collect payments or chase those non paying customers.

The Factor will pay the balance of the invoice, minus the fee that you have agreed upon. Whenever possible, electronic links can be used to speed the process up and allow you access to your money.

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