Debt factoring, ideally known as accounts or invoice receivable factoring is a great way to improve cash flow in your business. Basically, you get instant cash from the factor, rather than waiting for your clients to settle their invoices. It creates opportunities for your business to grow and expand that you would not get otherwise.
The Pros of Debt Factoring
1. Quick Cash Infusion
After you set it up, you usually get money in your bank account within 24-48 hours after you submit the invoices for factoring. This is excellent if you urgently need to pay some bills, purchase supplies or even repair crucial business equipment. It is ideally a great solution when you want to take on new clients and expand your business. In this read, experts at Asset Factors are going to discuss the various pros and cons of debt factoring.
2. Shorten Cash Cycle
The time between the purchase of products and getting the actual receipt of payment can be considerable. However, with debt factoring Wellington, you can significantly shorten this cycle. This opens up the ability to purchase more products and sell them for an additional profit.
3. Improve Cash Flow
One of the primary factors that prevent companies from thriving and growing is a constant issue with cash flow. Some businesses struggle with payroll and paying bills every month. There’s no room to expand product lines, take on new clients or even take the company to the next level. However, debt factoring makes the cash flow easier and gets rid of the struggles.
4. Cost-Effective Collections
If you hire a company that specializes in debt collection, you will pay anywhere between 20 to 50 percent of the debt’s value as a fee to the agency. However, with an invoicing factoring firm, these fees are not as bad. Yes, the fee does increase for invoices that stay unpaid for long, but on average, the solution is cost effective compared to using a debt collection agency.
The Cons of Debt Factoring
1. Factors May Influence Your Business
Debt factoring Wellington firms just do business with those who have robust business practices. If they find that you engage in risky practices, they may ask you to change the manner in which you conduct your business. This means they can influence the kinds of clients you take on as well as the individuals you hire as managers.
2. The Interest Rate is Usually Higher Than Bank Financing
The interest rate on debt factoring compared to bank financing tends to be higher. However, if you don’t have access to bank financing, or have decided to tap out, the invoice factoring is a feasible option.
3.There’s The Risk of Harming Client Relations
Once you enter into a debt factoring Wellington arrangement, the firm takes over your accounts receivable as well as collections. If the firm does not run their business professionally, or your client is aggravated by the debt collection efforts of the factor, chances are your relationship with the customer will be harmed. Additionally, some clients don’t like dealing with a third party in regards to queries involving invoices.