Whilst not a new financing form, factoring
can play a huge part in the success of a business.
Why?
Simply because strong cash flow is the main element of business
longevity. Its acceptance has grown over the years since its introduction
to the UK in the 1960’s, and is now rivaling traditional forms
of funding such as the overdraft. This sway in popularity is likely
to continue following recent legislation such as the Brumark case
(which called into question the bank’s reliance on debenture
based lending for their overdraft facilities).
Factoring can assist businesses through what is often their fastest
growth phase -start-up - ensuring cash is available to meet expected
and unexpected calls on liquidity. Once established, the ongoing
provision of predictable cash flow can ensure that opportunities
are grasped as they arise, and business plans are brought to fruition.
So how does it work?
Factoring releases up to 90% of the value of unpaid sales invoices
within 24 hours of them being raised. The remaining balance is then
made available when customers settle their outstanding invoices.
Additionally start up, young, and maturing businesses often have
limited resources. A certain element of credit management is built
in to a factoring agreement releasing valuable time for key decision-makers
to source new business and adds to the bottom line. Statements and
reminder notices will be sent to customers reminding them of outstanding
debts, telephone chasing is also included, discussed and tailored
to individual requirements at the outset.
A credit vetting facility is also available, providing a valuable
insight into a customer’s worth, prior to trading with them.
This opinion can help avoid the heartache of a bad debt, which if
relating to a large customer, could also lead to business failure.
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