What Are The Pros And Cons Of Invoice Factoring?

Invoice factoring speeds up your company’s cash collection time, which is without doubt the largest advantage of utilising a factoring service. If your company has £250,000 worth of outstanding sales invoices, working with an invoice factoring company could increase your cash by £200,000 within a day or a few days at most.The implication of this is that you don’t have to wait 60-90 days for your customers to pay on time. Your working capital can be largely increased, meaning your cash flow is much healthier and giving you an injection of available capital.

Invoice factoring also lets you reduce the time you spend on paperwork by outsourcing management of your sales book. Because invoice finance companies handle payment collection on your behalf, it means that you have more free time to devote to your core business issues.In some circumstances, invoice financing may even alleviate the need for a dedicated credit management department.This reduces costs to your business and also reduces the number of different services you have to use.

What’s more, choosing non recourse invoice factoring can lower your risk of not being paid for your goods or services.The factoring company accepts any risk that the debt may have, meaning that you don’t have to.This type of factoring obviously carries higher risk for the factoring company, so is more expensive to use.

Cons

Invoice finance services usually charge a percentage of an invoice’s total value, so utilising the services of one increases your company’s cashflow, at the cost of a reduced profit margin.

Because invoice financers deal directly with your customers to reclaim payments that are owed, using one will reduce the level of contact you have with your clients. If you don’t want this to happen, invoice discounting may be the right choice for you. The invoice discounter will not take over your sales ledger which means that you remain in charge of collecting debts from your customers.If you don’t want your clients to know about your financing methods, this may be the right option for your business.

A factoring broker can help you choose the best factoring company for your specific business requirements.