by admin on February 17, 2011
When you take out Factoring cover you’re often doing it to provide your business with some extra protection in the form of cash.
In a way it could be seen as being similar to buying your home insurance through someone like Policy Expert and knowing that you have that security of being insured.
When you Factor your invoices you are making sure that you have the cash when you need it and the Factoring company has the insurance that they have the value of your invoices so they can lend you a certain amount.
Factoring is just utilising your assets to further your business and providing yourself with the insurance of cash when you need it. If you wait a long time for invoices to be paid you always know that you have Factoring to help you out as and when you need it.
There are a lot of businesses that don’t realise the benefit of Factoring. They might think it’s a risky and costly strategy or they might not know enough about it to use it. Unfortunately for these companies they might be missing out on something that could really benefit them.
When companies are faced with a shortage of funds and need a fresh infusion of cash, what’s the quickest and most painless solution available?
Some may say that securing a business loan or line of credit is the best option. Unfortunately business loans and credit lines take time and have interest rates. There’s also the risk of being refused and for businesses that need money now, this is often not the quickest option. In addition, many businesses are already tapped out in terms of credit.
So, what else is there? Well, there’s factoring. What’s factoring and why is it the best option? Factoring is the quickest and surest way to secure financing when businesses need it the most. Unlike a loan or credit line, there is no high interest rate and no issue with making payments. When you take out Factoring it’s a good idea to an expert as you would when buying insurance where you would speak to a Policy Expert.
How does factoring work and what other benefits are there?
How does factoring work?
Factoring is when a company sells its customer’s unpaid invoices for immediate cash. In return, the factoring company will then proceed to collect on that unpaid invoice.
For instance, let’s assume your company has £10 000 owing on an invoice. The factoring company determines their payout to be 80%. Therefore, your business receives an immediate £ 8000. In return, the factoring company will then go out and collect on the full amount. Once they do, they’ll return the £ 2000, minus their fee.
Why is factoring better than a business loan or line of credit?
Whilst many companies immediately think that loans and credit lines are the solution, it’s fairly obvious why factoring is a better option. There’s no interest rate to be paid and no time waiting for an approval.
There’s no worrying about whether the company will be approved or not. There’s enough stress in business and this is worrisome enough. Finally, the fee is deducted once the final amount is secured. In this case, there’s no upfront payment for the company and no worrying about making any payments.
Factoring reduces the daily cost of money:
Every business knows the impact of the daily cost of money. With business loans and credit lines, this daily cost of money is calculated every day the business borrows that money and doesn’t pay it back.
It’s this daily interest rate that is tied up in the company’s inventory and unpaid invoices. Waiting 90 days to get paid can be an extremely difficult situation for any business. This is no longer a problem when a company decides to use factoring to raise cash.
Factoring allows businesses to pay for their day to day operating costs:
Some companies know they’ll eventually be paid, but simply can’t afford to wait. Day to day operating expenses like salaries, invoices and other bills, need to be paid and keep the business operating.
Because of the current recession, many companies face the difficulty of financing their customer’s unpaid invoices, whilst trying to pay their own bills. Factoring allows companies to draw on immediate cash reserves and still be paid on those outstanding balances.
While these are the most obvious benefits of factoring, there are others. In the worst recession since the Great Depression, businesses everywhere need every tool available. Nobody can ever fault a business for doing everything within its power to remain solvent. Factoring helps businesses remain viable and strong for the future.