March 10, 2020
Factoring is a fast and convenient way for companies to their working capital. There are several reasons why factoring is a good choice for companies that needs a short-term cashflow boost, or funds to expand its operations. Factoring is a service where a company sells their invoice to a financial institute for immediate cash.
First, Factoring allows a company to raise capital without having to take on additional debt. Whereas taking on debt can be useful to a company to certain extent when needed, taking on too much debt can be risky if the company cannot pay off its obligations.
Second, Factoring choice for who are unable to qualify for an unsecured bank loan. Getting a business loan is often a difficult and tedious process. Many younger companies experience complicated application processes and a long response times, which diverts resources away from running and growing their business. Factoring is viewed as a less risky form of financing, because it uses a receivable already due to the company.
Third, factoring eases the payment collection process. Companies have to wait weeks or even months to be paid for goods already delivered or services performed, and often have to dedicate resources in the collection of payments from their clients. According the SBO reports, statistics have shown that “in Singapore, late payments to SMEs add up to S$4.146 billion”. Also, out of the SMEs 10.32% of them are usually one to three days late if not 11.32% more than 31 days late. Due to the late payments to them they are forced to slow down their day to day operations. Once, an invoice is factored, not only do companies receive payment upfront, but the finance companies will be responsible for payment collection. Smaller companies can better deploy their resources to more productive purposes.