Factoring and debtor finance are one and the same, great financing options for all size business and for a variety of reasons.
Banks immediately spring to mind when a business is looking for additional funding to grow, develop new products or services or simply meet their financial commitments. Banks while they, like any business, seek new customers are far more stringent with their qualifying requirements and bureaucracy still reign supreme. A small business or start-up is far less likely to have the financial history and collateral a bank expects before it will lend any money.
Crowdfunding has become a popular means of funding new projects but with the popularity comes competition for the available funds. There are various types of crowd funding and none of them are guaranteed success and could take considerable time to reach a funding goal.
Venture capital is also an option but this could come with considerable strings attached, a higher return on investment or part ownership of your business. If you wish to remain in control, this is not the ideal source of funding.
Family and friends, while they may be eager to help, this could be the most problematic option. What do they get in return? What are their repayment expectations? How much say will they want in running the business? If this a funding option for your business, ensure a formal contract is in place with all the usual clauses to avoid any misunderstandings and stick with the terms and conditions, don’t think of lapsing just because it is family or a friend. The old mantra of “Neither a borrower nor a lender be,” is probably the best guide in this situation.
So banks, venture capital, crowdfunding, family all have their issues, their downsides and could simply be out of reach. What is a viable alternative?
Factoring which may not be a familiar term or more commonly known as debtor finance is an alternative and it is viable.
A business still needs to qualify for debtor finance but it is more often based on the customers of a business rather than the business itself. If the customer base is financially sound you will probably qualify for this facility.
It is a straight forward process. Once you qualify present your invoices – your accounts receivable – it may be all or some of them, to the Factor. Generally, within 48 hours of the invoice being issued, the Factor can deposit a percentage of the invoice value to your nominated bank account, with the agreed balance to be deposited when the invoice is paid. It is that straightforward.
Qualifying for the “cash flow finance,” as it is also known, is based on your company’s turnover which should be between $20,000 and $500,000 per month, even if you are a start-up company. In fact, this type of finance is ideal for start-ups.
The usual collateral is not required, nor is the pile of paperwork. Your verifiable invoice or receivables are the security and as your receivables grow, so does your facility with the Factor.
A number of satisfied customers don’t even wait for a time when they “need” the extra funds, they include debtor finance as one of their smart business strategies.