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A factoring service can stabilise the irregular intervals of your company’s cash flow that often results from debtors not paying on schedule. This is most useful to businesses that sell on credit terms with their customers. Factoring can ensure a steady flow of much-needed capital regardless of how predictable or not your customers are with their payments.

Factoring allows your business to avail of a line of credit based on your accounts receivable, usually up to 85% of the total amount. There is a charge of up to 3% of your company’s annual turnover in exchange for this service.

Essentially, the factor works as a bridging loan that allows business to keep moving despite the delay between the delivery of an invoice and the receipt of its payment. For a small or new business that relies on a steady flow of funds for regular and unforeseen expenses, having enough capital available can be crucial to its survival.

Unlike a traditional bank account overdraft which is arranged at an agreed amount, factoring does not need to be re-negotiated every time the needs of your business change. As mentioned earlier, the amount of available credit is based on a percentage of the total amount of your accounts receivable; your line of credit is directly proportional to the amount you are owed. Hence, whatever amount of money you borrow is automatically within the amount your business has already earned, significantly reducing the risk involved.

Is Factoring right for you?

The advantages offered by factoring to a business can be tremendous. Still, the arrangement requires careful management in order to reap the full benefits. Consider how suitable factoring is to your business’s particular needs and whether it will ease your current operations, or needlessly complicate them.

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