Credit Factoring - Debt Factoring Article

Credit Factoring & Debt Factoring

Both Credit Factoring and Debt Factoring are terms for the same thing. Factoring is a financial facility offered to businesses to fund the gap between when they raise their invoices (on credit terms) and when they get paid by their customers - commonly referred to as the "credit gap".

An explanation of why these terms are applied is below:

  • Credit Factoring - refers to the credit offered when invoicing e.g. 30 day payment terms. Factoring is often used as a verb - the process of providing funding against that credit.
  • Debt Factoring - refers to the debt of the customer (or debtor) to the business that is using factoring. Again the use of the word "factoring" as a verb describes the process of providing finance against that debt.

How Factoring Works

Factoring is very simple, it can be explained as follows:

  • You raise your credit sales invoices as usual.
  • A copy is provided to the factoring company.
  • They give you a prepayment against that invoice e.g. 85% of its value.
  • They conduct or assist you with the credit control.
  • The customer pays the factoring company.
  • The factoring company passes on the balance of the invoice less their charges.

The Benefits Of Factoring

The benefits of factoring are:

  • Improved cash flow - you don't have to wait for invoices to be paid.
  • Funding that grows with your turnover - as you raise more invoices so the funding released grows.
  • Credit control support
  • Cost savings - the credit control support can negate the need to employ credit control staff.
  • Bad debt protection (if required)

The Disadvantages Of Factoring

The disadvantages of factoring are:

  • Cost - there is a cost to use the service.
  • Factoring company having contact with customers (you can avoid this with Confidential Factoring).

There are many forms of alternative finance that you can use instead.

Credit Factoring & Debt Factoring Companies

Follow this link for a: List Of Factoring Companies

If you would like a quotation for factoring: REQUEST A FREE FACTORING QUOTE SEARCH

 

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Examples of just a few of our finance partners:

nucleus
igf
bibby
skipton
ultimate finance group
ashley