Factoring also called ‘debt factoring’ generally involves an invoice financier managing and organizing your sales ledger as well as gathering the funds owed by your prospective clients themselves. That means your clients will be aware that your business is using invoice finance.
So, the prospective users for factoring include any company that has a strong growth and where long receivables are a part of the business cycle. Generally, most companies factor for short-term such as 2 years or less than 2 years. These companies can receive an immediate fund that is within 24 hours. Invoice factoring typically depends on the strength of the company.
The question arises here is business entrepreneurs use factoring at all?
This is certainly owing to the tremendous benefits that factoring offers such as business remains debt-free, instant cash is generated, business expansion can be focused upon, company’s equity assets are not locked, administration cost related to collection activity is reduced and so on.
However, despite these benefits, people do have some misconceptions regarding factoring. Some people think that factoring is an expensive option. Some have a misconception that factoring is a loan while factory is an asset and does not cause any liability to the company. Some think that dealing with factoring companies is cumbersome whereas, factors aid customers with credit checks, and generate their financial reports. Some also feel that qualifying for factoring is extremely challenging while the fact is entirely different from the myth.
Therefore, what should be the actual strategies to make an efficient factoring program?
Here is a list to consider:
- Companies must make use of accounting software to keep their records well-maintained.
- Companies must ensure that the receivables are related to most credit worthy clients.
- Ensure that the client’s contact information is well-updated.
- Ensure that you have good business relations by offering them discounts even on late payments.
If you follow the above factoring tips, rest assured that you will be able to derive from your factoring company.