Factoring Benefits for SMEs
SMEs (Small and Medium Enterprises) often need financing to help their growth, but they can run into issues due to their size. Small company size paired with less financial history, make it difficult to be approved by banks when looking to receive loans. This makes factoring a great option for SMEs because factors look to their customers for credit score because that is where factors collect their payment from. Allowing the business to get their financing upfront, which will improve their cash flow and allow them to put their cash to use right away. This is especially important in a company’s growing stage when they need to use cash to grow, and recieving payment from their customer in net 60 or 90 days can slow down or even stop an SME from growing.
Along with the increase of cash flow that factoring can provide and the ease of getting approved, factoring also comes with better interest rates than getting a loan. Factoring typically comes with interest rates around 1%-3%, where getting a loan for an SME can widely varey. Loan rates depend on the type of loan, and also depend on the business. A working capital loan, which has similar use case to factoring, has interest rates that are on average between 10%-35%.
Lastly, SMEs can enjoy uncapped funding potential with factoring. As long as your customer pays the factor as promised, you can continue to increase the amount recieved as your invoice amount increases from your cusomer. This makes factoring flexible as your business expands and you require larger increases in cash.
Factoring Benefits for Large Companies
Larger companies can enjoy all of the same benefits from factoring as SMEs do. Most importantly, large companies can often times still struggle with cash flow, and they might need to take on debt so they can finance current projects when they are not receiving payments quick enough. Large companies have even more customers that they are receiving payment from, so speeding up their payments with factoring can be very beneficial.
Uncapped funding potential is another key offer that factoring provides to large companies. With bigger invoices or inventory purchase orders, large companies will still be able to get financing from a factor, and along with that they will be getting better interest rates due to the higher amount of payment.
Lastly, large companies often take on debt, which isn’t always a bad thing for bigger companies, but factoring can help finance a business without taking on more. Factoring offers companies who already have a bit of debt another option for financing that won’t increase their debt to equity ratio. This allows large companies to have multiple options of financing depending on their current needs, and can save them from having to dip too far into debt when cash is tight.
Benefits of Factoring Summary
Increase to cash flow
Uncapped funding potential
Low interest rates
Easy and quick approval
Don't take on debt