When to consider factoring

When the decision is made to pursue a factoring facility, the company should have a clear understanding of its own goals, as well as the results expected from the factoring company. This will allow the company to take full advantage of the comprehensive range of factoring services available.

Factoring is a particularly viable alternative for a growing company with factoring unlocking cash tied up in a sales ledger. In such a business environment, control is essential because managerial and financial resources are constantly being challenged and factoring can materially help.

Factoring can ease cash-flow problems and provide some predictability in a rapidly changing situation. Factoring can also increase the availability of working capital and alleviate cash-flow problems when a company takes on new customers; gains new customers; experiences a slowdown in collections; has increases in bad-debt levels; has heavy capital investment program or just needs to cover unforeseen cash requirement. Factoring would be their to help.

An acquisition, for example, can expose the firm to a new and unfamiliar customer base, thereby creating a need for enhanced factoring receivables management and that is where factoring can help. And since granting trade credit is comparable to making an investment in another company, a factoring companies credit protection helps prevent unsound investment decisions.

Factoring is often seen by professional advisers as a solution to a companies growing pains.

Author: Toni Nicholson, factoringcompare.com, 10/01/2010