The Benefits of Factoring

by Factoring Companies on June 23, 2010

Sometimes issuing invoices can be time consuming and many businesses have to wait a while to receive their payment, and so a company can be placed in an awkward position.

You may also have some bills to pay or need cash to pay your suppliers or grow your business. We suggest looking into “Factoring” and the benefits it provides.

Factoring is when a company lends a customer 90% of the invoice value. Factoring is also known as a way to finance a company with the value of an invoice that has been issued.

When a business grows due to increased sales more money can be borrowed and in such cases, Factoring, which is a flexible way of financing, is used. Furthermore, you will not need to have an asset in order to get a loan if you use the Factoring method.

If a business uses Factoring it can:

1. Obtain within 24 hours, 90% of the value of any invoice.
2. Receive a loan that is much more cost-effective.
3. Always know when it will get paid.
4. Enable the business to have less debt management.

That is why it is always preferable to raise money for a growing business by means of the Factoring method of financing.

Whenever there is competition, businesses find themselves needing more cash and the alternative solution is the business will get greater discounts from their suppliers and a more advantageous credit rating.

When Factoring is used, Cash Flow will also improve, without adding the debt that is usually involved. In fact a company will receive cash for any outstanding invoice by using the Factoring benefits, and in this way it can purchase equipment, meet its tax requirements in a timely manner and pay off any suppliers it may have.

In the case where you are selling services or goods to a government account you need to make the payment within 30 or 60 days and will be in need of cash in a short amount of time. In order not to have your cash reserves eaten up quickly, you can use Factoring and the benefits it has to offer:

• It is always easy to obtain Factoring.
• To set up a Factor account only takes a couple of days.
• You will not have to wait a long time to get your invoices paid when you use Factoring.
• Your business will always have working capital at hand.

Factoring will also improve a customer’s credit service by streamlining any new customers in need of approval, reducing debt that is bad or insufficient, and have greater control on accounts receivables by reducing administration costs.

The best thing Factoring has to offer is flexibility, and the advantage is that a business can always Factor as much or as little as it wants to, as there are no maximum or minimum amounts you can Factor. As previously discussed, the funding is based on the strength of your customer’s financial support.

When you are Factoring you are selling your invoice to a Factor and getting cash on a discount that is acceptable to both parties. Factoring relies on your customers and how credit worthy they are. This in itself is very different from the traditional bank method of loaning money.

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