Credit agencies to look more kindly on factoring

10/12/2009

Factoring out your invoices can help to improve ratings for sub investment grade corporations, according to experts.

Factoring involves ‘selling’ invoices to factoring firms that pay you the monies owed up front before taking a percentage of the money from the invoice when it is finally paid. Traditionally, some banks have considered factoring as a means to take control over some of a business’ collateral, which can lead to less security for other financers.

However, banks are now beginning to consider factoring differently and are viewing the cash generated through factoring as early payments.

This means the risk from the firm using the factoring service is reduced – making them a safer bet to lend money to.

Credit ratings agencies are reportedly now reviewing their attitudes to firms that use factoring as a way to enhance their cash flow and may improve credit ratings for companies that do so from now on.

As a result of this, factoring firms could increase the amount of money they make available for companies.

Invoice factoring, or discounting as it is sometimes called, has been a popular option for small companies during the recession.