Invoice Factoring

By Author: Priyon Susanz
Total Articles: 3
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What is Factoring?
In simplest terms, a factor is anyone who transacts business for someone else. Invoice Factoring (also known as debtor finance, cash flow finance, invoice discounting) has been a major component of business capital raising since the 1700s. Since then it has survived economic booms, recessions, and depressions. Nowadays, businesses often have misconceptions about, or overlook completely, how they can benefit from Invoice factoring. One of these misunderstandings is that only a financially weak company would factor their book debts.

While that occasionally happens, factoring is more often than not done by companies who are focused on growth. These are the businesses that need improved cash flow so that they can receive discounts from suppliers, prepare their inventory for peak seasons, upgrade equipment, and produce and sell more goods or services.

Traditionally, a debtor who takes a long time to pay an invoice causes the business to lose money due to financing, staff, and overdraft. Invoice ...
... Factoring can be a solution to this issue. Customers can use factoring on their accounts receivable in order to avoid incurring debt. When they do this they do not borrow money. The book debts of a company are bought by the factoring company. The factoring company receives a discount. The other company gets the cash from the selling of the accounts receivable. This allows them to be paid quickly and avoid the problems of a lengthy invoice.

Factoring can be beneficial to any company that operates using accounts receivables, whether they are a wholesaler, manufacturer, distributor, or in the service industry. Companies that are new, have a negative net worth, or are growth oriented will be helped the most by factoring. This is because the cash from it can end losses from operating, allow prompt payment of creditors, or be used to increase sales and production.

Factoring Benefits
Sales and Production Increases - The additional cash flow that factoring provides can be invested into the company so that it may take on larger orders and purchase any equipment needed for expansion. This increased production can lead to more profits for the company.

Purchasing Power Increased - Bulk purchasers often get discounts that smaller companies cannot normally qualify for. The capital gained from factoring can be used for large orders that will allow the company to get supplier discounts.

Credit Rating Improvement - A strong credit rating can be a benefit of factoring. The company can pay its bills in a timely manner and make larger purchases without needed to rely on debt.

To find out more about Invoice Factoring Australia visit Cashflow Advantage