Factoring and Invoice Discounting

What is factoring and invoice discounting - and how do they work for business? Is4profit takes a look

2. The advantages of factoring

2.1 You maximise your cashflow.

  • Factoring enables you to raise up to 85 per cent or more on your outstanding invoices. An overdraft secured against invoices would only raise up to 50 per cent.

2.2 You negotiate an initial credit line which can grow in step with your sales.

  • Bank finance, such as overdrafts and loans secured against existing assets, has to be continually renegotiated.

2.3 Using a factor can reduce the time and money you spend on debt collection.

  • The factor will usually run your sales ledger. You retain your own sales ledger operations if you opt for invoice discounting.

2.4 You can use the factor’s credit control system to help assess the creditworthiness of new and existing customers.

  • This is especially useful if you do a lot of business with companies whose turnover is lower than £6.5 million and who do not have to file full returns with Companies House.

2.5 You can purchase ‘non-recourse’ factoring to protect yourself against bad debts.

2.6 Factoring can be an efficient way to minimise the cost and risk of doing business overseas.

BHP Infosolutions

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