Factoring is an effective financial tool for new and small companies, providing convenient short-term financing.
Many businesses sell their invoices to specialised companies in exchange for ready cash as a method of improving cashflow. This is often used as an alternative to taking out a line of credit from a bank or other financing firm.
Main advantages of factoring
You monetize a large share of the value of an invoice on the very day it’s sent to your customer. This makes it easier to meet your own financial commitments.
Neutralize bad-debt risk
In a non-recourse deal the contractor sells off the risk of non-payment, unless there is a genuine dispute with the invoice.
Reduce administrative costs
Once the initial fee is paid, the contractor’s administrative duties are done. For businesses that deal with multiple invoices, this can significantly reduce administrative expenses. You’ll also eliminate the need to deal repeatedly with banks for short-term loans backed by invoices.
Streamline financial planning
You know when and how much you’ll be paid, so it’s easier to plan capital investments, expansions and other business expenditures.
Gain additional information
Factors often run credit checks on your customers and share that information with you, allowing you to better understand their situations and thus your potential risks.