Factoring is one of the oldest known forms of business financing, it is the cash management tool of choice for many companies. Factoring is very common in certain countries and forms the foundation of the credit card offerings from the likes of Visa and MasterCard. It is utilised in some industries more than others, however any business that offers credit sales could benefit from the use of factoring to enhance its business cycle.
Factoring effectively converts your credit sales to cash sales, thereby overcoming any hint of what bank managers like to call 'over trading'. By virtue of factoring the resources are available to fund your additional sales.
In a typical factoring arrangement, you make credit sales, deliver the products or services and consequently generate invoices. We, the factor, by way of our agreement purchase those invoices and pay you the invoices' face value less a discount, which is typically 2 to 5 percent. We pay 75 percent to 80 percent of the face value to you immediately and the remainder (less fees) follows when your customer pays the invoiced amount to us; upon it becoming due. This assumes that your customers pay within 60 days, in which case you get between 95% and 98% of the invoiced value. If the initial 60 day period passes without payment from your customer additional fees would normally apply.
Your customers' ability to pay is a large part of the equation to us. Meaning that if you have a strong accounts receivable ledger you may be eligible for a factoring facility that would provide you with up to 80 percent of your ledger's value right away; even if your bank (maybe citing 'overtrading') is reluctant to provide you with a suitably sized overdraft.
Factoring is not a loan; it does not create a liability on the balance sheet. It is the sale of an asset; your accounts receivable.
Once used mostly by large corporations, factoring is becoming more widespread. Still, plenty of misperceptions about factoring remain. Many do not understand that factoring offers not only funding but also the opportunity to outsource debtor administration and management. To compare the cost of bank funding with factoring you need to add the cost and time that you spend on this function to the cost of your bank facility.
You will be surprised at your:
- potential savings in both time and money; and
- potential to grow your business How can using CFF assist in growing my business? because of your ability to increase your level of sales
We recommend that you consider factoring as a form of financing your business. You should look at all the options and draw your own conclusions.
We would relish the opportunity to show you the savings and benefits that we can offer. We are far more flexible than the big banks and also provide services that they won't. For example you can outsource a significant portion of the administration of your accounts receivable to us, allowing you valuable time to concentrate on customer service and growing your business.
Give us a call and let"s set up your facility today!