Factoring is a common strategy used in business to help accelerate cash flow. If you are considering offering factoring, it is good to know what it will mean for you and your customers. At CREDITONLINE we offer a reliable factoring software system that allows you to successfully provide all factoring services.
What is factoring?
Factoring is an invoice financing service provided by factoring companies or banks. The factoring company buys a debt or invoice from another company at a discounted rate. For example, if an invoice is worth £2,000, the factoring company may buy the invoice for £1,800.
As a result, the business is free from the debt between sending an invoice and receiving payment. This allows the business to keep trading as normal with the working capital to continue. Meanwhile, the factoring company is responsible for chasing up the invoice debt. But the factoring company retains the profit once they settle the debt. Additionally, some factoring companies will also charge a flat rate or variable fees for providing the service.
As a bank, factoring company, or other financial institution, you have an excellent opportunity to generate revenue through factoring.
Would my customers be interested in factoring?
If you are interested in offering factoring to your customers, you need to consider what it would mean for them. This will help you determine which type of customers factoring will benefit and how many will use the service. Here are some benefits of factoring for your customers:
1. Improve cash flow
When sending an invoice, payment terms allow the buyer to wait a period of time before paying the invoice – often 30 to 60 days. This can leave customers a month or two behind on their finances. Factoring takes this burden away, keeping their cash flow positive.
2. Maintain good relationships with clients
Payment issues can be one of the main strains on a working relationship with clients. Especially if they are slow to pay. Factoring helps them maintain positive relationships without causing operational problems. When clients are not paying, sending invoices to debt collectors can cause more problems. However, a professional message to clients informing them invoices are now being factored is unlikely to disrupt a relationship.
3. Ensure the business can pay employees
If a business is new or facing difficulties, paying employees can cause strain. Especially if they are waiting for large payments to come in. Factoring can alleviate some of this pressure.
4. More time for customers to focus on business
We all know that chasing up invoices can take up valuable working hours. By offering smooth and reliable factoring, you give customers more time to focus on the business activities that really matter. Meanwhile, they know money is in their bank account.
Challenges of factoring
As a factor, your main challenges will be paying customers upfront and collecting invoice debts. However, you will quickly reap the rewards if you have the capital available. You will also need to ensure you have the staff and resources available for chasing up unpaid invoices. This is where a factoring system such as CREDITONLINE can assist you.
The CREDITONLINE loan business management system guarantees smooth and efficient business financing for banks, factoring companies, and other financial institutions. If you would like to know more about how it works, get in touch and we can give you a personalised demo