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Admittedly, balancing our financial accounts and assets is something that not many of us can do well. And if you are having a difficult time handling your finances and your cash flow as an individual, what more if you have a business that is struggling to move forward?

This is where services like factoring comes in. Factoring, also referred to as accounts receivable financing, is when your business sells your invoices, or accounts receivables, to a firm (also referred to as the factor) which provides you with a unique service. Basically, the third-party’s service allows you to have a free-flowing cash flow, even whilst you are waiting for your own customers to settle their accounts. This way, you do not have to be worried about running out of cash for your expenses and your daily operations.

How does factoring work?

FactoringThe premise behind factoring is quite simple: you need cash, so another firm specialising in this financial service provides it to you. The way you pay them back is by selling them your invoices, so when your customers pay, they will get the payment in return for what they have given to you. But it is also good to keep in mind that there are different forms of factoring which you can take advantage of. Some firms advance you between 80 to 90% of your invoices, and there is also what is called fixed factoring, which has a fixed service charge every month. When payment is collected from your clients, the factoring firm then gives you back the reserve balance of your invoices, simply subtracting a fee for the service. So it’s up to you to choose which your best option is. The factoring service can also provide you with administrative support.

Factoring benefits

Similar to other financial services, factoring has its own share of benefits. The most obvious benefit is that if you need to have a steady cashflow, you no longer have to wait for months before your customers pay. You already have the necessary cash in your hands so you can operate your business smoothly and without obstructions. Factoring provides an invaluable service in that it gives your cash flow the boost that it needs. An indirect benefit to this is the fact that you don’t have to worry about running out of cash – and you can therefore concentrate on worthwhile activities and pursuits that can help your business grow. The factoring company will also be able to help you with your collections from your customers, freeing your mind even further from collection concerns.

Another benefit that not many may know about is that the factoring service can be completely customised according to your needs. A good factoring firm will know that different companies have different needs and objectives, and they can give you the option to choose which type of factoring service works best for you. Factoring also provides you with an easy credit line that is not based on the net worth of your company – but on the credit of your customers. Also, with factoring, there is virtually no limit to the amount you can get, unlike with a standard loan. You have a continuous cash flow which you can make use of whenever you want it.

Whether you are a start-up enterprise or a small or medium-sized business looking to expand and grow, factoring (especially from trusted and reliable firms like Ultimatefinance.co.uk) may be just the financial solution you need.

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