Factoring can prevent small business owners from risking their own money

23/07/2009

Using a factoring or invoice discounting firm can help small business owners from having to put their own money into their business while they wait for invoice payments to come through.

Brendan Green from the Institute for Factors and Discounters says that this is particularly helpful in the current economic climate. There is little in the way of credit available for small business owners who are short of cash. Many may consider drastic measures like re-mortgaging their own homes to make essential payments.

However, a more sensible alternative is to employ a factoring company to provide cash due from invoices not yet paid. This money is then available immediately and the factoring firm are simply paid a small percentage of the invoice amount once it is paid, freeing up valuable cash when it is most needed.

Green says, "markets are fairly tight in terms of credit and I guess companies are looking at factoring and discounting as a really good way of being able to raise those funds...and you don't need to mortgage the family home, the business can fund the business."