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