During
this summer, I spent time as an Intern in a finance department, where I was
processing a large number of invoices. That gave me the chance to become more familiar
with the issues of factoring, which I had been introduced to during my studies.
Just
for the record, the definition of factoring, as stated on the internet is as
follows:
“Factoring
is a financial transaction in which a business sells its accounts
receivable/ invoices to a third party, the factor, at a discount.
In
"advance" factoring, the business owner sells his receivables in the
form of invoice to the factor, who makes an advance of 70-85% of the purchase
price of the receivable amount. The factor collects the full amount from the
customer in due course and pays the balance amount due to the business owner
after deducting his commission and other charges”.
The
latest development is that various investors can now become factors and can bypass
the traditional role of the banks in the factoring process. The invoice holders
are now provided with increased liquidity and lower financing costs. Even the government
is trying to induce this type of factoring by participating in the process as
an investor/factor.
“As part of the Government’s Business Finance
Partnership, the Department for Business Innovation and Skills (‘BIS’) is
committing £5m as an Investor Member on MarketInvoice, with expected yearly returns of approximately 10-12%. With
funds on MarketInvoice recycled every 45 days, this £5m commitment will equate
to approximately £40m in investment to SMEs over the next year.”
I
am attaching some links to websites that allow individuals to participate in
the process of factoring as investors.
The
following link gives a few reasons why this type of funding of working capital
is becoming more popular.
There
will be more on this subject on my next blog at the Accountant Magazine (The Accountant Blog)
