Article The Benefits of Factoring for Small Businesses and New Start Businesses
This article discusses the benefits of invoice finance through factoring from the perspective of a small business or a new start business that has just started trading.
When starting a new business finance for cash flow and working capital can often be difficult to access, particularly if you are a phoenix business.
Traditionally, banks looked for a profitable trading history and tangible assets against which to secure any lending. This often excluded the small business or new start company as they tend to lack both!
Factoring Benefits
Small Business Factoring can be the perfect solution, providing you know where to look. Factoring releases the funds tied up in a company's sales ledger and this is an asset that even a small or new start business will have. Typically, a factoring company will release up to 85% of the value of outstanding invoices which can equate to a significant cash injection for any business.
Factoring companies do not tend to be overly worried about the financial trading history of a business as the look to the quality of the outstanding invoices for comfort. This means that a small or startup business is on a level playing field with larger businesses.
There can also be other benefits that a small business can derive from factoring. Credit control and collection of the outstanding sales ledger will often fall to the prime mover who in many cases would rather spend his time finding new customers rather than chasing existing customers for money. The factoring company may be able to assist. They can provide a collections service using their own staff so that the small business can outsource the sales ledger collection and sales ledger management functions.
Outsourcing this the sales ledger management may not be to everyone's taste - some businesses want to keep control of this function. There are factoring products on the market that will allow even small and new start businesses to retain control of their credit control activity.
Another issue that small and new start businesses frequently face is the prospect of a major or prime debtor, or prime debtors. These are debtors that represent a disproportionate percentage of the businesses total sales turnover. Often in the early stages of trading a business may only have a single or a couple of debtors. Once again, there are factoring companies that will be able to assist with single debtor factoring. In some cases and within particular trades such as crash repairs, it can even be possible to find a factor that is prepared to allow their client to choose specific invoices against which they wish to raise finance, this is known as selective factoring, selective invoice discounting or transactional finance.
The key objective of many small businesses is to grow. Factoring is all about enabling growth through flexible finance that grows in line with your sales ledger. As the business raised new invoices so the factor makes funds available against them. This funding enables the business to pay suppliers promptly (in many cases negotiating discounts for cash payments) or to invest in activities such as marketing and promotion of their business to new customers.
In summary, factoring can be the solution for small, phoenix and new start businesses releasing a stream of flexible, growing funding without the need for an established trading history or tangible assets as security. There are numerous factoring products on the market that specifically address this niche, our advisers are always available to discuss your particular needs and to point you in the right direction for which we will not charge you.
We hope that this article provides you with some understanding of the key benefits of factoring to small and new start businesses. However, our advisers are only a phone call away and they would be happy to talk through the detail of your particular requirements with you.
