Top 7 Benefits of Factoring

January 21st, 2016

Although there are numerous benefits to Factoring, here are nine that top the list.

1. Cash without Debt

Unlike banking, factoring is not a loan and there is no interest to repay. It is simply the selling of an existing company asset – accounts receivable (current or outstanding invoices).

2. Simple Process

Unlike applying for a bank loans, setting up a Factoring account does not involve a lengthy paperwork process.. Depending on the Factor it takes about 3 -5 business days. Once the account is set up the businesses can usually receive money within 24 hours.

3. Unrestricted Use of Funds

Unlike a bank there are no margins or covenants to follow. When a business sells a receivable and receives cash against the sale of the invoice – the business is free to use the money as they see fit.

4. Ideal for Non-Bankable Businesses

In most cases Factors make their credit decisions on a few things: creditworthiness of customer (not the business selling the invoice), length of time it takes for the customer to pay for the invoice, size of invoice (volume). With that said businesses that have been declined by the bank. New start up to less than 3 years old or businesses that have no credit or bad credit can typically qualify for Factoring.

5. Flexibility

Typically, there are no long term contracts to sign with the Factor. There are no minimum or maximum amounts of invoices required to be sold every month with many of today’s Factors. A business can choose the invoices they want to factor – Ideal for seasonal types of businesses.

6. Administrative Services

Factors can provide a host of administrative services inclusive of the Factoring fees e.g. Credit Reporting, Invoicing, Collections, Insurance etc. Factors can help a business extend credit to a new customer, handle credit reports and paperwork and improve timely receipt of payments to save time and reduce bad debt.

7. Increase Profits

There are a number of ways a business can reduce or eliminate even eliminate Factoring cost. The steady influx of predictable, continuous cash flow creates an opportunity for the business to take advantage of early payment discounts offered by their suppliers, negotiate bulk discounts from suppliers, increase sales by hiring additional sales staff and offsetting overhead required to fund growth and expansion.

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