Factoring A viable alternative for a healthy cash flow

Factoring, also called accounts receivable funding, is the purchasing of invoices from a business at a discount in exchange for immediate cash; cash that would normally remain tied up in accounts receivable. Besides providing additional cash flow, a factoring company (factor) also provides collection services and debtor management. The factoring process is continuous, providing you with steady cash flow that grows with your business.

Factoring provides a viable alternative for companies that do not qualify for bank financing, and may also help both young and growing companies, as well as successful companies, that can’t afford waiting 30, 60, 90 or even more days for customers to pay their invoices. Factoring immediately improves the cash flow of a business.

History
Factoring has existed for many years in international markets. It has evolved and become a prominent financial tool for doing business in almost every industry. Since the early 1960s, it has been developing globally and has grown consistently in the USA and Europe. By the 1980s, factoring was increasingly used and was better understood as a viable form of funding working capital. Today, factoring is an acceptable and widely used funding product, offered by large banks and independent factoring companies around the world. Over the years, there has been a considerable boost in the Caribbean region to develop and promote factoring as a cash flow solution.

Benefits
There are many benefits of factoring and it has been proven to allow companies to grow. Businesses primarily use factoring for the following benefits:
• improve cash flow
• increase production and sales
• meet payroll obligations
• finance expansion without debt
• improve balance sheet ratios
• minimize write-offs
• take advantage of supplier discounts through early payment • fund marketing, acquire larger clients
• arrange for credit risk protection.

There are other advantages to using factoring. It reduces the overhead cost of collections and provides a business with online access to up-to-date aging and collection reports of all factored invoices. The collection from the debtors is professional, in order to ensure prompt, accurate invoice payment. Factors are not a bank or a collection agency and they will not harass respectable customers for money in an inappropriate manner. However, if there is a serious problem collecting an invoice, the factor will ultimately exercise its right of collection in a businesslike manner.

Non-recourse factoring
Some factors offer non-recourse factoring. Nonrecourse factoring implies that the factoring company assumes the risk of non-payment by the debtors. This means that if the debtor cannot meet its payment obligation, the factor will not ask or charge back the advance paid for the invoice. Non-recourse factoring will protect your company from writing off outstanding invoices.
Another advantage, especially in the Caribbean, is that factors often already have extensive experience in dealing with overseas suppliers for companies that want to expand overseas. Therefore, using factors will make international business efforts much easier.
Today, factoring companies offer other support services to their clients. These services include sending monthly statements to customers for payment, performing collection calls, processing and maintaining history on invoices and customer payments and providing reports, typically with online access for the client.

Who
Factoring is used in almost every industry that sells business-to-business or business-to-government products or services on terms of credit. Typical prospective factoring clients have one or more of the following characteristics:
• start up
• rapid growth
• slow customer payments
• desire to outsource debtor management
• operating in a dynamic market
• low capital base
• restructuring
• expanding abroad or entering other markets

Cost
In general the cost of factoring is only a small percentage of the invoice value. The cost of factoring depends on the volume of invoices to be factored, the number and variety of customers, stability and credit-worthiness of customers and the average days invoices remain outstanding. Qualifying for factoring is based primarily on your customer’s credit and not your company’s financial position.
Factoring can give you the peace of mind, the time and the money to focus on what you do best-grow your company.

FactorPlus, which was established on Curaçao in 2006, has been helping large, medium-sized and small companies to manage and control their businesses with non-recourse factoring. The company is an active member of the International Factors Group (IFG), an important knowledge center for international factoring developments. FactorPlus has offices on Curaçao, Aruba and St. Maarten. Through the IFG network, FactorPlus can service clients on other Caribbean islands, in the USA and the Netherlands. FactorPlus also offers import and export factoring.

For more information contact: Zeudi Glaudemans-Sprock FactorPlus (Caribbean Factoring Services) T +5999 737 0660 management@factorplus.com | www.factorplus.com