Benefits of Factoring

The process of factoring is very simple. It involves buying and selling firms’ invoices at an agreed discount. Factoring service is different from the traditional bank financing. In traditional bank financing, finance is based on the firms’ credit worthiness whereas factoring relies on the credit-worthiness of the firm’s customers.

The benefits of Factoring are as follows

Improve Cash Flow Without Adding Debt

Firm gets finance on its outstanding invoices

It helps to meet tax requirements

It helps to maintain sufficient working capital

Firm can invest in additional capital equipment

Firm can concentrate on market for additional business

Market share may increase among with their competitor

Firm’s customers get advantage of discounts

Improve Customer Credit Services

It helps to reduce bad debt

New customers get advantage of rationalized credit approvals

Administration cost may reduce due to entrusting the work

Firm gets good Accounts Receivable Management

Take Advantage of the Flexibility

Firm may entrust to the factor part or full book debts for collection

There is no fixed limits of book debts for factoring

Firm gets financial support as well as increase in the strength of its customers