| If your business gets cash-flow blockages on a | | | | company, then your factoring company would |
| regular basis due to a large number of credit | | | | assume the responsibilities of following up and |
| clients being on your sales ledger, then you could | | | | even collecting the pending payments from your |
| find a lot of cash constraints affecting the smooth | | | | clients on the due date. This could prove to be a |
| functioning of your business at regular intervals. | | | | boon for your business, since it would enable you |
| This could pose a problem, when you might need | | | | to focus your energy towards increasing your |
| money to pay your suppliers or employees and | | | | sales. |
| would put all your expansion plans on the back | | | | Disadvantages |
| burner. | | | | Since this service comes at a cost, you will first |
| Business factoring is a process, where a factoring | | | | need to examine as to whether your profit |
| company would 'buy' your credit invoices and | | | | margins can take in an additional load of 1.5% to |
| provide you with immediate cash in exchange for | | | | 5%. If your profit margins are already low, then |
| a small factoring fee that could range from 1.5% | | | | you might not be able to absorb this fee. If you |
| to 5%. Even though factoring is much more | | | | are providing a higher credit period with low |
| flexible and easy to acquire than a bank loan, | | | | margins, then this process might not be suitable |
| there are still some pros and cons that need to | | | | for your business. In case you go in for a |
| be kept in mind, before taking a blind plunge. Here | | | | non-recourse arrangement with the factoring |
| are some advantages and disadvantages of | | | | company, then you will also need to check the |
| business factoring. | | | | efficiency of their collection staff. They will have |
| Advantages | | | | to be polite, while asking for the due payments. |
| The biggest advantage of business factoring is | | | | Your clients will also need to be told of your new |
| that you get instant cash against your credit | | | | arrangement and some of them might not be |
| invoices. This means that you do not have to | | | | comfortable with it. You could also lose a few |
| painfully bite your nails, as you wait for the due | | | | clients in this process. A factoring company might |
| date of your various invoices to arrive. This | | | | not be as accommodating as you were and could |
| process thus improves your cash flow and since it | | | | be very aggressive, while pursuing your |
| depends on the number and amount of invoices | | | | payments. |
| that you submit to your factoring company, it will | | | | Thus, you should look at both sides of the |
| enable you to receive amounts on a regular basis, | | | | factoring coin, before you make up your mind. |
| thus maintaining a positive cash flow at all times. | | | | Even though there are many advantages to |
| This will enable you to go in for larger orders, | | | | factoring, there are other factors that are bound |
| make larger purchases, in order to get the benefit | | | | to affect your profitability and might also affect |
| of quantity discounts and even pay your | | | | your relations with your clients. Therefore, you |
| employees and suppliers on time. | | | | should examine your business model, your profit |
| You might also be able to put your expansion | | | | margins and the relationship with your clients, |
| plans into action, which previously might have | | | | before you think about utilizing the services of a |
| been stuck due to lack of cash. If you have a | | | | factoring company. |
| non-recourse arrangement with your factoring | | | | |