There are many advantages of factoring which arise when it is properly used by a company. Factoring is a form of invoice finance and is a type of invoice finance which is disclosed to the end customer. Unlike confidential or invoice discounting, the end customer is fully aware that the business or company has entered into the factoring or finance agreement with the bank or financier.
Tow key advantages of factoring are as follows:
As with all types of invoice finance, the main benefit is increased cashflow for a business. Rather than waiting an average of 70 days plus for payment of invoices, the company will notify invoices to the bank or finance company providing the factoring facility and they will then immediately remit the agreed prepayment percentage of that invoice e.g. 80% or 90% to the company (subject to debtor verification checks etc). The company can then use that cash as working capital.
When the invoice is ultimately paid by the end customer to the bank, the balance of the invoice e.g. 10% is paid to the company less the bank’s charges for running the account.
Outsourced credit control function
Another main advantages over other types of invoice finance is that the credit control function i.e. chasing the outstanding debts etc. from customers is conducted by the bank or factor.
This can be of great advantage to companies who do not have their own credit control function as the credit control function is outsourced to experts within the factoring company who have the systems and experience of chasing down outstanding debts and making sure they are paid in a timely manner.
Francis Wilks & Jones is one of the very few firms of solicitors who are genuinely experts in the world of invoice finance and factoring. Whatever your enquiry, please do contact us and we would be happy to discuss it with you.