Factoring is a financial instrument that is becoming increasingly popular among Australian and international businesses across a variety of industries. It utilizes the capital of debtors in unpaid invoices to create cash flow for your business. Third-party financial companies enter into an agreement to manage your sales ledger, and pay forward a substantial percentage of what is owed on invoices as soon as the work is completed.
The Important role of Factoring Companies
Without factoring companies, your business is at the mercy of its debtors for cash flow. This can mean waiting days, weeks or months for debtors or insurance companies to pay their invoices. If your cash flow is tight or you are in need of working capital to reinvest into your business for expansion or purchasing parts, then factoring is one option for making cash flow more reliable and efficient.
Factoring companies take control of your sales ledger and pay you immediately for invoices. This means there is no waiting time for working capital and you won’t need to chase up the debtors to pay their bills. Factoring companies will have a look at your books to determine your suitability for their services and then manage your cash flow to keep you suitably afloat.
These relationships are typically ongoing and are useful for companies in growth phases, and when money is tight due to large contracts or the necessity of rapidly reinvesting in the company.
The Difference Between Factoring and Invoice Discounting
Factoring and invoice discounting both leverage unpaid invoices for working capital but function in different in ways. With factoring, the factoring company takes control of your sales ledger and chases up debtors for payments. With invoice discounting, you are still responsible for chasing up your debtors and if they fail to pay, then you are responsible for making up the residual with the invoice discounting company.
Another key difference is that invoice discounting arrangements can be confidential, while factoring relationships are usually made clear to the debtor, as the factoring company will be chasing up payment.
Working Capital Finance are Industry Leading Suppliers of Factoring Services and Invoice Discounting
Working Capital Finance are industry leading providers of factoring and invoice discounting for smash and auto repairers, panel shops, detailers and mechanics across Australia. If you believe one or more of these services are appropriate for your auto repair business, please get in touch with one of our consultants today by calling 02 9968 2328 or contact us online.
Please note: The content of this article should be considered informational and not construed or considered to be actual financial advice.