Factoring invoicing
is sometimes the best way for a company to raise cash -in sometimes
quite large amounts - quickly and efficiently. A factoring company will
lend a company a percentage of each invoice that it buys and will then
collect the invoice when it becomes due and pay. It will then pay the
balance back to the issuing company. The factoring company's fee is
normally a very small percentage of the value the invoice.
In effect, factoring invoicing is an extremely flexible form
of loan. Yet it is different to overdrafts or more formal loans, which
are usually for a fixed amount.
There are two chief
advantages of factoring invoicing when compared to overdrafts or loans.
Firstly, factoring is flexible in that the amount a company borrows
can grow with sales. This is very useful as a company grows and is often
essential to enable businesses to fund that growth (as they usually
have to pay for supplies before they receive payment). The second chief
advantage is that no other assets are needed to secure the funding.