Factoring companies can help replenish your working capital needs

Posted by MJim. on May 5th, 2017

Business enterprises face a shortage of working capital frequently. Of course, the banks are there to help under the circumstances. However, the process of acquiring financial assistance from the banks is a long drawn process. It can also involve the business enterprise having to provide collateral security for the loans. The banks invariably refer to the credit ratings. In case the business enterprise has a less than satisfactory rating, the banks are reluctant to help. In the meanwhile, the industry suffers. However, they have a fantastic option in the factoring companies.

Factoring is a simple tool to raise money for working capital requirements. The best part of the arrangement is that you do not incur any debt when you raise money through factoring. It is a simple kind of invoice financing. The procedure is a very simple one.

Once you complete the assignment, you have to ship the goods to the customer. Naturally, you will be raising the invoice. Competition demands that you give sufficient credit to the customer. This could range from 15 days to even 90 days or more. In case you have to supply to big clients or government departments, you would not be in a position to bargain for the payment. Under such circumstances, you remain out of funds for the period. This can affect your working capital needs.

The factoring companies can come to your help during such times. You raise the invoice on the client. You can use this accepted invoice for raising finance. The factoring companies discount these invoices after verifying the same for its genuineness. These companies do the credit check of your client because he has to pay the invoice on the due date. You can use the money to procure raw material and commence on the next working capital finance. There is no need for you to wait for the realization of the invoice. You get the payment for the invoice in advance after paying the factoring fee.

The best part of this factoring business is that it includes the freight charges as well. Both the manufacturing and the services industry can benefit from factoring. The advantages accruing to the business enterprises are great when you use factoring. One of the greatest advantages of factoring is that you can get the payment in spite of having a bad credit rating. The factoring company understands that they have to receive the payment from your client. If he has a good credit rating, that should suffice for the factoring companies. This is very much opposite to the functioning of the banks. The banks ask for your credit report before financing against the bills you raise on your client. In addition, there are chances of the banks asking for collateral as well. The factoring companies do not insist on such conditions. Hence, the process of factoring does not take much time at all.

This is the best way for the business enterprises to raise immediate funds. They can use these funds for meeting their working capital requirements or for paying staff salaries, etc.