Factoring & its advantages

A cash crunch is a frequent occurrence in any business since impending costs like payroll and other payments often clash with the need to extend credit to customers for 30 days.

Factoring is a time honored, highly popular, quick and flexible financial tool that enables a company to improve the company's cash flow. This form of financing allows the business credit-worthy accounts receivable to be discounted and converted into immediate cash. Factoring allows the company’s invoices to be used as collateral for a short-term loan that immediately provides the business with cash to meet important expenses. This method efficiently addresses the issue created by every company’s need to extend credit to their customers and the problem of slow paying customers.

It is the most convenient way to raise additional working capital without the need for collateral. Furthermore, as your sales increase, your funding requirements will increase very quickly. Factoring is the best solution for funding a growing business. It can be structured to a variety of clients across a broad range of industrial and manufacturing sectors including electronics, garments, watches, food, printing, paper distribution, gifts and stationery, toys, cleaning and security services, etc.

Advantages

Increased available cash
Factoring maximizes the cash available to a company and is a better option than the traditional mode of bank lines of credit. A company borrows on the basis of their sales and thus automatically finances its growth.

Predictable cash flow
Factoring not only enables a quick & speedy cash flow but it also makes it easier to manage the cash. Since invoicing has a greater degree of certainty than the receipt of customer payments, the cash flow through factoring is more predictable.

Higher Flexibility
Factoring allows you a convenient method of arranging for cash. You can factor when you want, as much as you want, and for as long as you want.

The entire procedure is very simple and requires a company to send the invoices along with supporting documents and the company can receive 80% to 90% against these invoices. Upon collection from your customer when the invoice is due, the original amount plus a fee is retained and the balance is returned.

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