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Factoring for New Business |
Running your own business can be stressful enough without the worry of cash flow. With growing sales, this can be a huge barrier to continued success.
This is when a good factoring company can help you.
Traditional funding, such as bank overdrafts and loans, are often too inflexible to cope with the cash flow demands of a growing business. As a new venture you are likely to experience your steepest growth curve at the outset.
The need to renegotiate as limits are quickly exceeded can tie up time, and often attract fees. This can be avoided by using factoring. Available funds grow in line with your sales, and you don't usually need to use personal assets as security.
Business management and back-office processing can be a juggling act, managing staff, deliveries, negotiating with new and existing customers - all of which take management time. This precious time can be increased through the provision of professional credit management, also provided as part of a factoring facility.
How does it work?
A factor can release as much as 90% of the value of your unpaid sales invoices (less a small service fee) frequently within 24 hours of your raising them. The remainder is paid once the factor receives payment from your customer.
All you have to do is issue your invoice and send a copy to the factor electronically or by post.
Having agreed a collection procedure with you in advance, the factor will then send statements and reminder notices.
Of course, all factoring companies will fully understand the delicate nature of the customer relationships, and work closely with you to balance your need for prompt payment with good and lasting relationships with your customers. You remain in control of your customer relationships at all times.
Who is it best for?
The first and foremost requirement is that you need to be using an invoice and payment structure i.e. you perform the service or deliver the goods then invoice for them.
The second main requirement is that you work in an industry or perform a service where payment and what necessitates payment release is clearly defined. For example, it is very hard to factor the construction industry where payment can be delayed while work is agreed as having been completed satisfactorily.
The real winners and traditionally high users of factoring include:
This is a guide. It may be helpful for you to speak to an advisor in factoring.