Is Factoring/Invoice Discounting For You?
July 5, 2011These days it can be difficult to get your money back from debtors in time. This increases the risk of bad debt and the need to borrow funds, which can cause you financial problems. If this is causing some real worries, then look no further!
Factoring is a service in which your business sells its invoices to a third party, and in return you can receive a quick boost in your cash flow with up to 85% of your money back in approved invoices. Invoice Discounting is a confidential version of this.
While real suitability comes down to a number of factors such as the amount of your annual turnover, and having a wide range of customers; the advantages and disadvantages are the real decider. The main advantage itself is fast money from your debtors, and the amount of time it can free up for you to run your business rather than chasing up customers for your money. A service such as this does cost and there are at least 2 elements to this; the admin and facility fee, and the borrowing cost itself.
While these are just some of the good and bad points of the service, it depends entirely on your circumstances and the quality of your debtor book. If your debtors are the principal assets and cash flow is tight then this can be the life preserve you’ve been praying for. But the charges can be an issue if you do no manage the process and ensure that you are working with a finance house that understands your business and customer base. As the money is being collected for you, this time saving must be used productively to get that extra business in order for you to cover the cost of the service. Factoring is very useful for providing working capital to fast growing businesses. If your debtors are an asset and you have a good client base (not too much reliance on a few customers) , then this facility must be considered if you are not a well capitalised business as it allows you to raise some much needed working capital.
This is a major financial decision and you need impartial advice from experts comparing the various providers in this sophisticated financial banking sector. If you need help with your current financial situation regarding your business, give us a call or drop us an email and we will be happy to help!
