A number of businesses in Scotland use Edinburgh factoring to achieve a speedy return on their invoices. Let’s take a look at what is meant by the concept of factoring and how it optimises your company’s cash flow.
The origins of factoring date all the way back to the European renaissance and the growth of the world trade. It was the most common way to conduct finance in Europe due to bank bureaucracy being frustrating and complex. Simply put, it is a process whereby a company sells off any outstanding invoices to another party, known as a factoring company. This company then pays those invoices immediately, and takes a small percentage for itself as commission.
The process is different in the way that a business would conduct transactions with its bank. It isn’t a loan as such, but rather the purchase of a profitable commodity. When an Edinburgh factoring company purchases your invoice, it then owns any money owed on that invoice. This is typically less risky than a standard bank loan. The factoring company assumes all risk involved and provides a number of services to businesses, ensuring that the invoices are paid. It advises on the creditworthiness of any potential debtors, for example, as well as managing all accounts receivable, which helps to relive the burden on its client.
Any kind of business can utilise the services of an Edinburgh factoring company. If a business is experiencing inconsistencies in cash flow, it is a particularly useful option. Businesses can often experience durations of financial fluidity which are then followed with a shortage of cash flow. Factoring ensures a steady stream of cash flow by eliminating any down time that a business would typically experience when waiting to collect on invoices. Although part of the total of the invoice will be lost – the factoring company’s commission – the consistent stream of cash flow will certainly help.
A difficult financial climate will cause a number of businesses to experience financial hardship, which creates a lot of pressure. This is where Edinburgh factoring really comes into its own, as you can utilise this form of finance to relieve much of the pressure by being able to access immediate finance. For the sake of conceding just a small amount of the profits of your invoice, factoring can relieve your financial pressures and enable you to concentrate on the day-to-day running of your business.