Factoring and Invoice Discounting are two very similar things. The main difference between the two however is that Invoice Discounting allows you to keep control of your sales ledger.
So what is Factoring?
As a company you might have taken on a big job, but then suddenly realised that you don’t have the funds that are needed to supply your product or service. Obviously that is very frustrating.
What Debt Factoring does for your business is it enables you to raise finance off the back of invoices that you issue to your clients. The company lending you the money can see that you are due to be paid a certain amount and they will often lend you a proportion of that amount before you are paid by your creditors.
It’s a simply solution that works very well for many businesses. Payment can be made within 24 hours and generally up to 85% of the valiue of your invoices.
Improves your cash flow
If you are in business you will know that cash flow is extremely important. If you don’t have a strong, positive cash flow you could find your business gets into financial trouble quickly. Factoring helps solve those problems.
Let’s say your business has had a great quarter and made lots of sales, you could still find yourself in difficulties. Invoices won’t be due to be paid until a set time in the future and even then that is often delayed. If your cash flow is poor you could still be struggling. Factoring is a fantastic solution for businesses in this situation.
Complicated
The agreements between you and Factoring lenders can often be complex. To avoid any issues it is often advisable to get a solicitor involved to make sure you don’t make any bad decisions and sign any agreements that aren’t right for your business.
Freeing up your Sales Ledger
Depending upon how you look at it and how you run your business, freeing up your Sales Ledger could be very useful to you. Essentially, Factoring gives you this opportunity. By outsourcing your Sales Ledger you might then be free to run aspects of your business that need more attention.
Never enter into a Factoring greement without thinking carefully about whether it is the right thing for your business to be getting into at that time. Do you desperately need to improve your cash flow? Do you really need more money to finance business purchases? Could you get by without a loan until your invoices are paid?
Remember you will have to pay interest on your loan and this could be fairly high depending on the risk you pose to the lenders.
