If you own a small to medium size business and have reputed customers or supply to government companies on credit, then you might have a lot of funds blocked up during the credit period, which could be from 30 to 90 days. It would be wonderful if you could get immediate cash against your sales. This would increase your cash flow and help you tide over routine expenses such as salaries, payments to suppliers, etc. It would be even better if you would not have to take a loan against any collateral and worry about paying your installments on time. The good news is that this is possible with the help of your factoring company.



When you take the services of a factoring company, they will "buy" your credit invoices that you have issued to your customers or government bodies. They will then make the payment of the invoice amount in 2 installments. The 1st installment will be transferred to your account electronically within 1 or 2 days and could be 60 to 90 percent of your invoice value. The 2nd installment will be given to you after deducting the factoring company's charge when your customer makes the payment on the due date. This charge will depend on your customer credit rating as perceived by your factoring company, your credit terms with your customers and the volume of sales. Therefore, you get most of your invoice amount almost immediately even though you have sold goods on credit.

This service by the factoring company frees your money blocked in the credit period and improves your cash flow. This enables you to pay your staff salaries, your suppliers, and can even help you make bulk purchases at special discounted rates. This can now enable you to increase your sales. You can even bag big orders from your customers, which previously would not have been possible because of the large amount of your money being locked up. Hence, due to factoring companies, your sales and cash flow will improve immediately.

The factoring companies can also take care of the collection side of your business. Once they "buy" your invoice, they will then follow it up with your customers to get the payment released. They will also release regular reports of payments received and accounts receivable to you. This can help you in re-directing your collection department to some other work and you too can concentrate on other areas instead of worrying about collections. No more sleepless nights worrying about payments.

However, your gross profit margins should be above 15 percent for you to actually enjoy the financial aspect of this service. Getting your money quick enough should not be the only criteria since you would have to pay a factoring charge of 1.5 to 3.5 percent, depending on the above-mentioned factors. Your increased sales will fully utilize the potential of this facility.

So factoring companies are not only financiers against your sales, but are also an integral extension of your business since they also look after collections and bad debts. Hence, factoring companies help your company to become stable and grow at the same time.