Factoring explained
What is Factoring?
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Factoring is a short-term financing method, which is an alternative to lines of credit offered by banks. This technique is more flexible and efficient than traditional financing. It is based only on your business’ account receivables, rather than on its own borrowing capacity. Factoring can improve your cashflow, since the disposal of your account receivables means that you get immediate cash for your sales. Not only are you paid before the expected term, but you also benefit from outsourcing the hassle of collecting the money owed to you. This way, you can focus your efforts on growing your business, not on getting paid.
Who uses Factoring?
Factoring is useful for businesses in need of cash, and which also happen to have good account receivables. This type of financing is particularly advantageous to certain businesses: startups, businesses which are growing, have seasonal needs or undergoing a restructuration phase.
In general, businesses taking advantage of factoring are doing well for themselves, and are facing a strong growth which they simply cannot fund properly, for instance because new clients are imposing payment terms of 30, 60 or 90 days.
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