Why Has Factoring Previously Been Taboo In Business?
13 Aug 2015
Welsh based firm Simply Factoring Brokers has shed some light on the factoring industry and why it’s becoming more acceptable for businesses to use a factoring company, to ease the pressures of their cash flow.
Factoring is a service used by companies that trade with other businesses so that they can receive a percentage of their invoices upfront. In legal terms a company sells their invoices to a factoring company for a small fee, normally averaging between 1-2%, and they will receive 80-90% of their invoices on the day they raise it to pay for any upfront costs such as materials, labour or equipment.
“The factoring industry is a lot bigger than most people think,” said Steven Adams, Managing Director of Simply Factoring Brokers. “But as the industry isn’t regulated by law it’s always best to use a broker who will use their experience to place a company with the right funder. This can often save a business thousands in fees and as the brokering firms get paid by the funder, so their service to a business is completely free.”
Factoring has been around for decades. Until the early 90s and even coming into the millennium it was seen as a facility that was only used by companies in financial distress. Many years ago, if a customer was factoring you were passed to the administration department as you were almost expected to go bust. However, in the last 5 to 10 years the industry has really cleaned itself up and the is now regulated by a trade body, The Asset Based Finance Association (ABFA) and all the invoice finance companies have signed up to their rules and regulations.
“As people are understanding factoring invoice discounting more and more, even banks are starting to recommend this once taboo product over more traditional forms of finance such as loans and overdrafts,” continued Mr Adams. “I think that there was previously a stigma attached to factoring because it is disclosed. This means everyone knew that your company was being financed in an era where finance was a fairly new concept.”
As a factoring brokerage firm Simply Factoring Brokers do everything for their clients and make the process as easy as possible. “As soon as we find out what a company does and how their invoicing process works we match them to a well suited funder and save them money on what they would pay going direct to the factoring firms,” said Steven Adams. “Just like mortgages or car insurance different companies specialise in different areas. We save our clients the headache of this and by the time you are sitting down with the funder we have already negotiated fees, terms of business etc and we are fairly confident they are a funder that will help.”
The firm has recently moved offices and is working on further expanding it’s team over the coming months.
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