Factoring Finance

Factoring is a rapidly growing form of finance that generally involves a business selling all or part of its receivables to a factor at a discount and in return for immediate cash.

There are two types of factoring: non-recourse in which the lender buys, typically up to 85% of the sales ledger, undertakes the credit collections and assumes the customer credit risk.

Recourse factoring involves the lender financing an agreed percentage the sales ledger for around 90 days after which any outstanding invoices are charged back to the borrower.

The fundamental difference between Factoring and Asset Based Lending lies in “ownership” of the receivables. Where a young business is growing, this can present the issue of a major cash flow gap. Factoring can help by releasing a continuous supply of cash against the company’s sales invoices immediately.

In addition, the business owners no longer have to worry about having to chase their customers for payment. They are free of the administrative concerns of running a sales ledger.

For more information on factoring visit: www.statesecurities.plc.uk