Factoring with Nova Cash Flow Finance – the Role of Sellers Creditworthiness

Factoring with Nova Cash Flow Finance

When an SME is facing cashflow problems mainstream, thinking by big financiers is that the business owner will call on personal savings. Unfortunately, by the time the cashflow crunch hits, personal savings have already usually been exhausted. Also exhausted are those of close family and friends.  When you are experiencing cashflow distress it’s time to consider factoring with Nova Cash Flow Finance.

Next step is NOT a loan.  Although its difficult for a small business to get a loan to assist growth when times are good there’s no chance during cashflow distress.  The chance of a bank approving a business loan or overdraft in hard times is almost impossible.  

Time to consider factoring but you have no money in the bank and no security to offer.

That’s okay.  The whole premise of factoring is that the risk is in the debtor’s ledger of the business owner. Not the business owner. So if you have no money in the bank and no security to offer but you have a good spread of debtors, that pay reliably then this is what the factor will look at to assess your eligibility for funding.

The question of creditworthiness

To the Factor, the creditworthiness of the debtor is the biggest factor to consider before approving a funding line. When an application for factoring is made by the business owner, the lender first checks the applicant’s creditworthiness.

Negative information will not necessarily impact a client application for a funding line. However, it is always investigated.

What can impact the application is negative credit information on the debtors.

Risk management presents a constant and ongoing challenge for all factors no matter the size.   To ensure the factors interests are fully protected the debtor must be assessed for risk of non-payment. This does not need to be done repeatedly for the same debtor but every debtor needs to be assessed.  The process is thorough and there can sometimes be a gap between submitting a debtor for approval and funding the debtor’s invoice.

Factoring to the rescue

The factor will fund the underlying asset or invoice of the business owner at an agreed percentage of the invoice value.   This makes factoring an immensely useful tool for business owners who have just set up their company or those who are recovering from an economic downturn that has affected their cashflow.

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