What is Factoring and How Can It Improve Your Business?

Factoring can be defined as a process where a business sells its invoices to a factoring company and in return, it receives instant payment as a cash advance. Just for a small fee, the factoring company makes the debt follow-up and handles all the payment issues which are not yet settled, getting rid of all the difficulties associated with the administration of the invoice.

Factoring is very crucial to any small business as it can enhance the cash flow and promote the growth of the company as it ensures there is consistent flow of income and also guarantees that there are no monetary assets held up in invoices thereby providing quick access to funds which are meant for the business though they are yet to be paid by the debtors. Factoring is ideal for a start-up business and small companies.

How factoring can improve your business:

Invoice factoring ensures the businesses have quick access to cash flow, conveniently and is an excellent option to traditional means of financing. Factoring can improve your business in a variety of ways.

Improves cash flow and generates working capital quickly without incurring debts

Since it isn’t a loan, account receivable finance can aid you in accessing the funds you require quickly, with minimal credit requirements. This makes it possible to secure working capital without damaging your credit, without accruing debt or negatively affecting your credit rating. Securing a loan from other financial institutions such as banks will impair your credit score which can make it difficult for you to secure loans from any other institution.

Factoring can better your credit

As a result of increased cash flow you have realized through factoring, you can better your credit score as well as the credit ranking.

Since you can factor your receivables and have huge amounts of money quickly, you are well placed to settle the debts from other companies which may have extended you credit on time. This enables you to strengthen your relationship with your other creditors.

Paying your debts or bills on time is one of the ways of improving your credit score and not exploiting all the available credit. If you can follow these two things consistently then you will boost your credit score and this will help to qualify for huge amounts.

Factoring enhances your credibility

When you decide to partner with an invoice factoring company, paying bills on a timely manner cannot only improve your credit score but also enhance your credibility. Settling your bills on time helps to strengthen your relationship with the companies you acquire goods and services that your business requires. Contractors and vendors tend to build trust with businesses that settle their bills on time and this may lead to an extension of their credit. 

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