Factoring is a great option for bridging late payment gap

03/03/2011

Cash flow at many growing companies is stretched to breaking point thanks to the current uncertain economic climate, VAT rise and rising fuel costs.

Larger companies are also throwing their weight around and delaying payments to smaller firms, making it even more difficult for them to survive. Whereas payment terms were traditionally set at around 30 days after the service had been delivered, bigger firms have been stretching payment terms to more than 60 days – a nightmare for firms struggling with cashflow.

Increasing numbers of businesses are turning to factoring as a way of bridging the late payment gap. If a company needs to pay staff on time each month, but it can't rely on the timely payment of invoices by clients, factoring is a great option. It allows a firm to raise the majority of its monthly invoices as the month comes to a close and get the funds immediately by outsourcing the credit control process.

CEO of building maintenance services firm First National Services, Nick Morgan, told Growthbusiness.co.uk, “It’s about the same charge as an overdraft, but the problem with the bank is the guarantees that they want.

“Factoring is much more flexible – they’re not looking for charges on property. Without it we wouldn’t be around today,” he said.

The factoring companies make chasing clients for money easier and remove the hassle from companies who don't have the time – or the inclination – to do it themselves. Many managers agree that the cost of paying a factoring company is far more affordable than taking on an in-house credit chaser, or wasting staff man-hours on the job.