What are the Benefits of Factoring?
Factoring is a type of financial transaction in which a business sells its invoices to a factoring company at a discount, and the factor, in turn, advances up to 90% of the value of the invoices upon shipping, on day 1, so the business doesn’t have to wait 30, 60, or 90 days to get paid. Once the invoice is paid upon invoice maturity by the buyer, the factor sends the remaining balance to its client.
Businesses factor their accounts receivable so that they can meet cash flow needs to support the financial health of their operations. In addition to various financing solutions, international factoring companies offer collection and receivable management as well as credit protection. As a result of these services, businesses benefit from reduced overhead costs, invoice processing by a dedicated third party, and a better credit term
Let’s take a more in-depth look at the advantages of international factoring:
International factoring companies like Tradewind Finance have an edge over domestic companies because of their network of offices and affiliates available in different regions of the globe. Tradewind’s international presence positions them to work with clients at both ends of the transaction, providing local market insights and on-the-ground support. Based on your company’s client profile, you can choose a suitable range of services that meet your requirements, including financing arrangements structured in different currencies.
It’s Not a Loan
Many business owners are worried that factoring their invoices will mean getting a bad credit score. Luckily, one of the major hallmarks of factoring is that it isn’t a loan, so this type of financing won’t show up on the balance sheet as debt.
You Get a Guarantee
There’s always an underlying risk that customers will default on their payments. But when you work with a reliable factoring company that offers non-recourse financing, you have the benefit of their financial resources, namely, credit protection, that will guarantee payment in the chance of buyer’s insolvency.
When you assign your receivables to a factoring company, the financing you receive in return is what helps regulate cash flow. It increases the amount of working capital available and as a result, you build a balance sheet with more liquid assets and can grow your business faster.
Minimizes Risks with Credit Investigation
To mitigate the degree of collection risk, many factoring companies offer a credit investigation service that garners reliable data about your buyer’s reputation in the market as well as its financial strength. Using this information, you can reduce risks when it comes to collection and curate a high-quality list of customers.
You Save on Time
In the world of business, time is of the essence and while running a company, you can’t afford to waste such a precious resource. Monitoring credit, managing collections, and evaluating a buyer’s creditworthiness are all crucial practices in operating a business safely. These processes are time-consuming but you can contract an international factoring company to carry out all these tasks for you. Consequently, you have more time to focus on your core business and develop new strategies.
Save on Extra Costs
By using an international factoring company’s services, you’ll have to spend less in overhead expenses as the factor will act as an extension of your office by handling collections and bookkeeping for you. In addition, you’ll be able to make payments to suppliers in cash and not credit. You’ll save money on unnecessary costs like penalties and late fees.
Better Financial Status
Unlike other financing options, factoring enables a company to pay for its operations using the capital it generates from selling off its receivables. You’ll experience a reduction in commercial payables, as well as collection time, and as a result, your company can enjoy better financial stability. Put simply, you’ll be deploying your own resources to help finance your company’s development and needs, boosting business as a result.