Predict eashflow
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WHAT is it that most companies seem to value about factoring?
International Factors told me that, first, it means that they can take full advantage of the factor's credit management team.
Second, a company can turn debts into immediate cash with 100 per cent bad debt cover. Because of their financial strength factors can accept a substantially greater risk than a normal trading company.
Third, factoring makes it possible to predict cash-flow requirements and relieves the administration of sales ledger accounting and credit management.
Up to 75 per cent of the value of invoices can be called on immediately they are rendered, with the balance paid on the average date of customer's payment, less the cost of factoring, credit notes. etc.
Charges are based on a percentage of invoices purchased by the factor, in the range of 0.3 per cent to 2.5 per cent. Cash repayments on the amounts called forward by the customer are charged on a day-to-day basis geared to a basic rate and comparable to normal borrowings.
Money is available to honour the order book, for factoring is geared to sales, and this source of funds automatically follows
the profile of trading.
The impact of high inflation has impressed on management the need for effective control of trade credit. The growth and development of a company brings a corresponding increase in debtors. This generates an increasing demand for working capital. _
Factoring is now an accepted business practice offering distinct advantages to firms ranging from fast-expanding smaller concerns to "blue-chip" companies. Working capital is paramount to business success, yet it is surprising how much can be tied up in a company's debtors.