![]() The factoring company, also called a factor, pays a significant portion of the slow-paying invoices to provide the business with immediate financing. In the invoice factoring process, a business sells outstanding invoices to a third-party factoring company. When considering what is needed to factor invoices, the most obvious requirement is unpaid invoices. Understanding the following general factoring qualifications can help your business prepare for entering a factoring agreement and solve its cash flow needs. Be aware that factoring companies may have different requirements and application processes. Your business may need to meet several factoring requirements to partner with a particular factoring company. Factoring is a popular cash flow management solution, with the global volume of factoring at an all-time high.īefore a factoring company agrees to work with your business, you must meet specific factoring requirements. Invoice factoring allows your business to receive immediate cash for its outstanding invoices without applying for a loan or pursuing payments from customers. ![]() In order to improve their cash flow management, many companies turn to invoice factoring. Yet when customers are slow to pay their invoices, you can experience cash flow challenges that make it hard to sustain and grow your business. Factoring agreements with and without ‘recourse’ are available, with the non-recourse option involving higher fees due to the lender’s increased risk which is mitigated by a credit insurance policy.Your business needs cash flow to manage mission-critical tasks like ordering more stock and investing in marketing campaigns. Something else to watch out for is whether or not you become liable should a customer fail to pay. A third party’s involvement in the debt collection process could destroy an otherwise impeccable reputation in the eyes of a customer. For example, you may wish to keep the fact that you are borrowing money against customer debt confidential, in which case the lender’s name will not be included on your invoices.Ĭonfidentiality is an important issue when a company’s unique selling point is based on excellent customer communication and care. Specific types of contractįactoring and invoice discounting agreements are often tailor-made to each company, and its objectives. This is because their risk is largely based on the credit-worthiness of your customers, and if there is any doubt about their ability or willingness to repay, you may be asked to provide the backing of an asset. In some cases, financiers require collateral before they will lend. Some of the language used in this market can be ambiguous or unclear, and it is often only those with experience in this particular type of finance who are able to quickly decipher the small print. Of course, lenders aren’t allowed to hide fees and charges, but they don’t always make them stand out in their contracts either. Some companies offer a free trial, but if yours doesn’t, you’ll need to know the minimum term and notice period required should you wish to end the arrangement.īeing charged ‘hidden’ fees is a common complaint from business owners who haven’t checked the small print. Length of contract and notice period for exitįactoring contracts are generally long-term, and can be difficult to exit without detailed planning. The team are available now - 08 What constitutes a factoring agreement? No matter what position you are in and need looking for options, speak to a member of the Real Business Rescue team. Don't Worry - There are thousands of other company directors going through the same process.
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