Advantages of Factoring

In addition to the key benefit of accelerated cash flow, there are several other advantages to Factoring. Customer relations can be improved on the basis the responsibility for collection rests with the Factor, thereby relieving the client from the need to pressure its customers for payment of overdue accounts.

When customers are aware that a Factor is involved, they may even pay their bills more promptly. Since the Factor may also be handling accounts for several other of their suppliers, customers will be careful not to jeopardise their credit rating, as non-payment to one supplier may immediately damage their rating with others.

Factoring may even save a company money. Many firms are not able to duplicate the services offered by a Factor on their own for the same cost. Credit investigations, collection of overdue accounts, record keeping, and all related accounts receivable costs may be significantly higher if a company uses its own credit department or an outside collection agency. Outsourcing credit and collection problems enables a company to concentrate on its core competencies. This in itself could eventually offset the commission paid to the Factoring, while avoiding all of the collection headaches.

Factoring can also improve a company’s financial ratios. When accounts receivable are sold, they no longer have to be carried on the balance sheet. Instead, cash or the amount due from the Factor can be shown as an asset, thereby permitting a company to demonstrate a better working capital ratio on financial statements.

In the past, Bank owned Factors and commercial finance companies handled the vast majority of Factoring. However, today, Independent Companies are a favoured alternative, carrying over 50 percent of the totalled Factored volume in the United States.

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Factoring, in one form or another, has been around for thousands of years. Factoring releases the funds locked up in outstanding sales invoices, is a sure-fire way to turn your outstanding debtors into cash. Factoring is frequently used by businesses to improve cash flow. It can also be used to decrease administration expenses.
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