Is Factoring Suitable For Startups?

Business finance for startups can be scarce which means even if your company is trading successfully, it can be difficult for you to grow your business. There is hope out there however for startups and that is thanks to a method of business finance known as factoring. Read on below to see just how factoring could be the boost that your business needs to grow.

What is factoring?

Put simply, factoring is where your company sells its invoice for a percentage of the debt owed. Receiving up to 95% of your invoice immediately gives your business an immediate cash injection instead of having to wait 30/60 or even 90 days for your money. The factoring company then collects the full amount from your customer. You are charged a fee for using the factoring services.

Is my company able to access factoring finance?

If you can answer YES to most of the following questions then factoring could well be a good idea for your startup:

  • Are you a startup that is struggling to access sources of funding from regular sources such as banks?
  • Does your business’s cashflow struggle sometimes thanks to a long sales cycle which means your company has to wait 30, 60 or even 90 days to receive payment?
  • Are you finding some of your customers are really slow players and that this is really hampering your growth plans?
  • Do you sometimes find yourself struggling to find up-front money for raw materials, equipment and other payments?
  • Do you wish to avoid ladening your business with additional debt by taking out a loan?
  • Have you exhausted all other finance routes?
  • Do you have customers with good credit ratings?

Of course there are other factors to consider such as realising that there is a cost for factoring and this means that you will not receive the full amount of your invoice but that cost is normally the equivalent of the early settlement discount that many companies offer. Other things to consider are the fact that you will have no ‘book debts’ available as security if you’re trying to access other sources of finances and your customers will know you are factoring too because the factoring company will be collecting the money from them although this is no longer seen as a negative.

Should we go direct or through a factoring broker?

You have two options to access finance through factoring. Firstly, you can go direct to one of the many factoring companies that are in the marketplace. Secondly, you can go through a specialist factoring broker. The latter is almost always the savviest decision as there are a wide range of factoring companies that all offer slightly different terms conditions and processes. It’s vital that to get the best deal for your business you get specialist advice to guide you through the myriad of options. Best of all, you’ll pay no more than going direct.

As a startup business, it’s wise to get all the advice you can on all aspects of your business. To get free, independent and no obligation advice about factoring and how it could help your business then don’t hesitate to contact Factoring Solutions on 01827 707680.

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