Once upon a time invoice factoring was condsidered the lend of last resort. There was once a stigma surrounding factoring or invoice discounting however businesses wishing to maximise their cash flow realise that there are no better options. Any sensible finance director or managing director will know that a bank overdraft is potentially a very dangerous funding option. All overdrafts are repayable on demand and we have seen many instances recently where once very profitable businesses have had their overdrafts withdrawn because of a poor set of trading results. This can have catastrophic consequences for the business and can even have worse consequences for the directors particularly if personal assets have been lodged as security.
Factoring or invoice discounting both maximise a businesses cash flow by releasing cash against invoices you have raised but as yet have not been paid for. The security is the actual invoice and the factoring or invoice discounting company are expert in making sure that the invoices are paid in a timely and orderly fashion. Therefore any exposure as a result personal guarantees is reduced to a minimum. Guarantees are not taken by all finance companies . It just depends on the circumstances of each particular deal. This has got to better than using a bank overdraft!!!
