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The funding benefits of this form of invoice finance are discussed within this guide and reference to this is recommended. This is no different to that of invoice discounting.
Where factoring does differs from invoice discounting is in the additional service provided to your business by the factor with regards to credit administration and control.
In today's highly competitive economic environment, businesses are under constant pressure to tighten operational controls in order to maintain profitability. In many cases,
companies must devote more and more time to credit and cash flow concerns which shifts attention away from the principal objectives of increasing productivity, sales and marketing efforts.
With factoring the factor will often:
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· credit assess your new customers
· receive payments in from your customers
· reconcile these payments to your sales ledger
· send out monthly statements to your customers
· send out reminder letters to your customers
· make any necessary phone calls regarding overdue payments to your customers
· insure these debts against bad debt or protracted non payment
· feed information back to you, often online
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There are some substantial benefits in this means of funding and indeed it is not uncommon these days for companies to use factors to 'contract out' their credit management even where they
may have no need for the finance that is generated.
The cost savings to your business in factoring should be considered, including time savings, staff cost savings, cost of your phone calls, improved professionalism, customers paying sooner.
Also the possible benefit, certainly in smaller businesses, in divorcing sales from credit control.
This though is naturally a sensitive area. Your customers are the most important area of your business and you need to be sure that the factor approaches these professionally.
There are some very good providers of credit management and as in any industry there are those less good. Chosen carefully you can often find the credit management service of factoring a great asset to your business.
Blue Asset Finance can guide you to those considered better and more flexible in this area.
Factoring will provide the flexibility of finance to fund growth, but importantly then also provides the systems, controls and checks so that you do so on strong foundations. Credit given to your customers is an
investment by your business. As with any investment the associated risks should be managed and monitored carefully, commercially and professionally.
Given that under a factoring facility your customer will make their payments directly to the factor, the factors involvement in your business is naturally disclosed to them. You will continue to invoice your
customers in the same way as you have always done, although on your invoice will be a 'notice of assignment', detailing the request to pay the factor directly.
Concern is occasionally raised by companies considering factoring of the impression that this disclosure may give to their customers. This has its roots, at least ten years ago before the significant increase
in the popularity of this method of finance. Today concerns are perhaps more perceived than actual. Most companies are aware of other successful companies that factor and factoring is now often seen as the
norm or indeed of the sign of a growth business.
Not all invoice finance providers offer factoring, although the majority do.
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