Many small to medium sized companies use factoring finance or invoice discounting as a form of working capital. It allows the company to draw money against the invoices, despite the customer not having paid the money. There are many benefits as to why factoring finance or invoice discounting is a good thing but what exactly is it?
Factoring finance and invoice discounting are two different things. Invoice discounting is mainly used by small to medium sized businesses plus larger concerns as they are able to withdraw about 80% of the money tied up in the sales ledger before the customer has paid. This is conducted through a third party company who will then charge a monthly fee but is completely confidential so the customer does not know that the invoices are being discounted.
Factoring finance is where a third party purchases the invoices but in addition the factoring company will carry out the sales ledger administration including credit control. The customer is aware that a third party is being used whereas with invoice discounting the customer is not aware.
Why should I use factoring and invoice discounting?
There are many reasons why you should use factoring or invoice discounting. The main advantage is that it improves your cash flow significantly and therefore you can also pay your supplier more rapidly meaning that you can negotiate discounts. If you are looking to expand your business or apply for a loan for working capital purposes then this is one the way to go as banks are reluctant when it comes to lending to SME businesses and therefore may not lend to you.
Say goodbye to the waiting game with factoring finance
At times you can wait days, weeks or month before an invoice is paid, which for a small business is hard, as it can leave you short of money each month. However with invoice discounting or factoring finance there is no need to wait for your customer to pay as will receive up to 85% of the funds within 24 hours of the invoice being issued therefore making your bank account look good. As your turnover levels increase, so will your funding levels. Without this you could be stuck chasing unpaid invoices for months on end leaving more administration work.
Companies who offer factoring and invoice discounting as a service can offer really good advice along with credit check enabling you to focus on other parts of your business.
However as with everything there are also disadvantages. Sometimes the fee for the services can be pricey which means that this has an effect on your bottom line each month. As you are supplying information to a third party, you are increasing the burden on your team by creating more administration tasks although this can be offset by the savings in credit control time and costs.
Normally the advantages outweigh the disadvantages when it comes to factoring and invoice discounting. Yes there are companies that charge hidden fees and sometimes the prices maybe a dampener on your monthly accounts but are it worth the stress and the hassle by not having it? There are so many benefits as to how it can help your business and with the right company by your side to guide you in the right direction, how can you say no?
At Factoring Solutions, we can assist you in finding the right company; with over 40 years of experience we can use our skills and expertise to save you time, hassle and money so that you end up with the right factoring company for your particular business so why not contact us now on 01827 707680 and speak to a factoring expert who can advise you on the best options available for your particular company without any obligation or charge as all of our broking services are always completely free of charge.