What is factoring?
Factoring is a financial transaction in which an institution purchases (or discounts) an account receivable from a company and then ensures collection for which it is paid.
When should factoring be used?
Factoring may be used at any time. Whether in a period of growth or stability, pressure on current cash flows can sometimes be a serious matter. What’s more, factoring constitutes a partnership that can be used to prevent bad debts as well as reducing administrative concerns, while allowing adequate and appropriate financing for the company at the same time.
In what ways will factoring improve my company?
The benefits of factoring are closely linked to the use one makes of it. Whether the cash flow generated is used to increase sales or grow your inventory, the important thing is to have a strategy. For example, factoring can allow you to take advantage of healthy discounts related to payments to your suppliers (2% - 10 days /Net 30 days) and should therefore be considered in a number of situations as a highly effective strategy from the point of view of profitability.
Should I factor all my accounts receivable?
Not necessarily. The important thing is to ensure that factoring fits in properly with your needs; thanks to its flexibility, it’s a solution that provides you with the advantage of having access to your funds at a time that is convenient to you. Factoring can be applied just as easely to your US and international clients as to those in Canada. So you can factor on a case-by-case, client-by-client or invoice-by-invoice basis, as long as your requests respect your agreement on the specific amounts available, by client and overall.
Are my clients going to get the impression that I’m in financial difficulty?
Not at all, but the key is to make sure that you keep things transparent. In the majority of cases, once it has been explained, factoring indicates and confirms healthy management procedures and can have a positive impact on various aspects of the transaction with your client (financing, insurance, collections and cash receipts).
Is factoring expensive?
Once calculated you will immediately realize that it is not expensive. Costs related to this service must be considered and evaluated as a whole. Factoring is often reduced to its lowest denominator: the financing. Furthermore, in order to determine whether the cost is onerous for your company, it must be considered that factoring is not just a source of financing: it also includes additional loan insurance, management of accounts receivables and collection. Factoring is indeed more than affordable!