Small & Medium Size Businesses Financing Using Factoring

money when you need it. factoring

Factoring is an important type of financing from external, non-banking sources, taking place daily around the world. Factoring is utilized and relied upon by all types of businesses. In every country, there are international corporations as well as small and medium-sized businesses engaging in factoring activity.

Factoring is a different type of financial credit which is based on the quality of the business’s accounts receivables. Factoring is tied much less to the SME business’s overall credit worthiness. In essence, the small or medium business with a less than perfect credit ranking uses the good credit ranking of their buyers in order to get the working capital the business needs. Factoring is very helpful in countries with less than stellar contract enforcement. A Factoring company you can trust, is with Orion Business Capital, check our their website for more information: ¬†

Many, if not most, small businesses have problems with access to reliable financing. Good access to financing is particularly important to the small and medium size business to help cover costs of production cycles. Problems in having liquid assets sufficient to cover the cycle of production, shipping and payment is a common problem for small and medium business entities. This is because most buyers call for up to 90 days to pay for purchases. This situation results in the selling business holding a non-liquid, unusable account receivable until the buyer’s payment is received.

At this point is where the benefit of factoring steps in and becomes evident. Factoring is a type of financing that is not a loan. The SME business sells their best, and credit-worthy, accounts receivables at a discounted value in order to receive immediate cash. The amount of discount is usually calculated as the sum of an agreed amount of interest plus service, or transaction fees. Factoring is not engaging in borrowing money and does not incur extra liability on the SME accounts balance sheet. But, factoring does provide the capital the SME needs for operation, usually as needed for the costs of production of the company’s products. Another benefit of factoring is that the factor engaging in the purchase of the receivables of the SME take on, and assume, the credit risk for the ability to pay of the buyer.

money talkConsidering all aspects of factoring, this is a way for the SME business to have a complete financial service that protects the credit, reduces accounts receivable tracking with bookkeeping and eliminates the need for collection activities. The SME will not need to request, rely upon or find conventional bank financing for some time. Only when the needs of the business are greater than factoring accounts receivable of the business can provide.