Fund your business the easy way

Factoring may not be well-known to public but is an important financial tool used by most businesses. It is popular because it is easy to use, can be set up quickly and can provide working capital requirement for growth of business.

Businessmen usually approach their bank to fund their working capital requirement. These banks have stringent procedures and demand personal guarantee, which many businessmen may find difficult to give. Some banks may require the business to show profits for three years in your statements. New businesses may find this clause difficult to fulfil.

If your clients take 60 to 120 days to pay their bills it makes sense to factor these bills. Factoring helps in providing cash to meet the payment demands of the suppliers and the employees.

The process of factoring is simple. Once you have generated an invoice you need to send an electronic copy of the invoice to the factoring company. The factoring company will pay you up to 90 per cent of the invoice amount. Once your customer has made the payment the factoring company will return your 10 per cent after deducting their charges. Factoring companies charge between 1.5 per cent and 3 per cent as factoring fee.

One of the most important benefits of factoring is that it is linked to your sales. A growth in sale will lead to a growth in financing which is important for companies that are looking to expand their business.