FACTORING

Factoring is the cash purchase of your sales invoices at a discount by another party (the factor).

The rate of discount varies between factors and the services included.   The factor advances you up to say 80% of the value of your invoices and takes over the collection of your accounts from your customers.

There are two factoring types:

·         The 20% balance, less the factoring fee, is paid to you when the factor receives the customer’s remittance.   You are still responsible for bad debts.

·         The factor company carries the bad debt risk.   No further fee is paid

There can be some difficulties with factoring.   For example, the link between you and your customer can be broken through the factor handling statements and cash receipts, so look for a factor that provides a confidential service.   Also, the factor may impose tighter credit controls than you would normally adopt, leading to a loss of sales.   So make sure that the factor does not interfere with your credit policy.

Factoring is one way that businesses can improve their cash flow and maximise the use of their working capital.

Factoring services are available from finance companies an factoring companies.