What Are The Benefits Of Factoring

by Stephen Hine | Sept 13, 2012

Chia-Li ChienBusinesses these days are constantly looking for innovative and new financing options. Factoring is one such tool. It is basically a financial product wherein a business can secure loans based on the strength of its outstanding receivables. Typically the loan advanced ranges from 75% to as high as 95% of the total value of the outstanding receivables.

Factoring is especially suitable for new or small businesses that find it difficult to match the criteria for conventional financing or are not in a position to offer real estate security or other collateral. Under this arrangement, the financing institution will evaluate the creditworthiness based on the strength of the accounts receivable of the company. In other words, if your business has outstanding receivables from a list of creditworthy customers, you can cash in on that even though your own company doesn't match the financing criteria.

The best part about factoring is probably that, under this arrangement, your business does not have to bear the burden of a conventional debt and compromise with the credit line and working capital. Factoring also helps you get cash within a time period as short as 24 hours, without having the working capital strained due to loan repayment compulsions.

The benefits on factoring can be listed as:

  • Factoring helps to raise your working capital without debt burden.
  • The payment period from your debtors is drastically lowered, hence boosting the cash flow.
  • You save on time and resources for chasing debtors and can concentrate on business growth
  • You can secure higher discounts from suppliers since better cash flows help you do cash payments.
  • You can purchase new equipment with the extra cash flow to enhance your profitability.
  • Factoring can also enhance your sales since credit extensions become possible through this.
  • Factoring has no bearing on your credit line and helps to improve your credit ratings.

Factoring thus opens up a lot of possibilities for your business without having to be weighed down by loan repayment burden. Payment terms for outstanding receivables is drastically minimised from 60-90 days to just a mere 24-48 hours. With enhanced and fast cash flow, you can go ahead with your business expansion plans, hire additional workforce, buy new equipment or plant, anything that you feel gives your business the desired boost. So the next time you face financing issues, there is no need to get bogged down with difficult and extensive credit criteria of conventional financing. Just go with factoring and give wings to your expansion plans.

About Stephen Hine

Stephen Hine has been providing commercial funding solutions to businesses for over a decade across a variety of sectors with exposure across both the Corporate and the Small Business sector. To learn more about how to fund your business growth then go now to http://www.afmarket.com.au


About Chia-Li Chien

Chia-Li Chien

Chia-Li Chien, CFP®, CRPC, PMP; Chia-Li “like JOLLY!” Succession Strategies for Women Entrepreneurs. She is Chief Strategist of Value Growth Institute dedicated to helping private business owners increase the value of their firms. She is the award-winning author of Show Me The Money and faculty member of American Management Association. Her blog and newsletter was named a top small business resource by the New York Times “You’re the Boss” blog.


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