Sunday 22 September 2013

Factoring...A new twist to an old idea.

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)

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