Debt Factoring and You: How to Decide If It’s Right for Your Company

Debt factoring can be a very useful tool and service to free up your tied-up cash so that you can make timely payments yourself.

23:48 13 January 2023

Debt factoring can be a very useful tool and service to free up your tied-up cash so that you can make timely payments yourself or even invest in key opportunities as they come. Having your money tied up in processing times is incredibly frustrating, especially for businesses that operate with narrow profit margins or those that take on big projects at once that need the injection of cash to keep payments rolling. 

Debt Factoring Overview

Debt factoring is a way to free up your tied-up payments. Invoices can take weeks or even up to a month to be paid, simply due to the number of invoices a company’s team needs to process and approve. If your company needs payments sooner than these standard processing times, then debt factoring can be a good solution. If you can easily make all your payments and still have money left over, you won’t need debt factoring. Debt factoring is only for those that need to boost their cash flow by leveraging their unpaid invoices. 

Where to Find Debt Factoring Options 

Like with any financing option, shopping around is the best way to get a great deal and partner with the right provider. Brokers are the fastest way to do this since they collect the best deals for your situation on your behalf. It doesn’t cost you anything to use these broker services either, since they typically earn a commission from the providers themselves. A top broker, like fundinvoice.co.uk, can help you understand your factoring options, and get you in touch with the best factoring provider for your needs and situation. 

Some Advantages and Disadvantages of Debt Factoring

Advantages

• You gain quicker access to funds. Your cash flow will be steadier, and you will have access to funds due to you more quickly than waiting for invoicing times. This, of course, opens up more opportunities in terms of hiring staff, business ventures or seizing marketing openings. 
• Employees can focus on their main tasks, and you can look to expand your business rather than diverting work hours towards chasing debt. 
• As a form of outsourcing, it can reduce the workload of employees or the company at times of heavy business peaks or when the company is expanding quickly. 

Disadvantages

• You are using a service, and as such, the factoring company will charge you – this comes out of the invoice balances. This charge may be high if you choose an expensive provider, and this is money which can no longer be used in your business. You will need to research the company that you use carefully to get the best deal, and this is where broker firms are particularly useful. 
• You may feel that using a factoring company to collect invoice payments doesn’t allow you to completely control your customer/business relationship. This depends on your current relationship and how you currently interact financially. Some may prefer the slight distancing of finance and service.

At the end of the day, debt factoring is a robust solution when you need the money you’ve already earned sooner. It’s available for businesses who work in a B2B capacity and typically must deal with long processing times after they send their invoice in. If you have the funds to pay for what you need without it, then you don’t need factoring, but if you’re struggling or need to jump on a unique deal or investment, it can be just what you need to make that happen.