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• 12 Aug

  Why Factoring Is Used

  Previously I have written about the perception of one of the invoice finance providers that factoring is growing in popularity. To a certain extent, in recent times, the industry statistics do show a slight swing towards factoring products, as opposed to invoice discounting.

  This post just explains the reasons why companies use factoring rather than other forms of invoice finance.

  Why Factoring Is Used

  The key difference with that factoring is that the funder also provides a credit control service to their client, in addition to the cash flow benefit of receiving prepayments against unpaid sales invoices raised to debtors on credit terms.

  The credit control service means that the factor takes over the collection of your outstanding sales ledger of invoices to customers. This means that they will send out paperwork such as statements and chasing letters, in addition to making telephone calls to chase up overdue accounts.

  This can deliver a significant benefit for a small or medium-sized business, as it can mean you don’t need to either chase invoices yourself or employ a credit controller, saving money.

  The only proviso is that not all factoring services offer equivalent credit control services. In some cases, the service is provided whereby the factor will only chase the largest accounts on your ledger, it is more of a risk control mechanism than the delivery of a service for the benefit of the client. In other cases, the factor will provide a fully comprehensive invoice collection service which can realise significant cost savings for users.

  These collections services can also be extended to include export debts, to customers based in foreign countries. Once again, this can relieve the headache of having to employ your staff with foreign language skills.

  By Glenn Blackman