Many small businesses struggle with cash flow in the early years. One way to improve your cash flow is by factoring your debts.
When you factor your debts the factoring company gives you up to 85% of any outstanding invoices straight away. They also take the burden of collecting your debts away from you. For this service they charge around anywhere between one and three percent of the invoice value.
I used factoring in the late nineties when I was struggling to manage the growth of my packaging business. Some of my biggest customers were taking a long time to pay their invoices and as their business increased the only way I could raise money to keep supplying them was through factoring.
Initially my fee was 2% but after one year the factoring company reduced it to 1.5%. This fee not only paid for the collection of the debt but it also insured it so that if any of my customers went bust I would lose a maximum of five hundred dollars.
The way this works is that before you supply any new customer you submit their details to the factoring company and in return they give you the amount of credit you can offer. All debt supplied up to that figure is...
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