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Cash Flow Management

Possible disadvantages of factoring

The first potential disadvantage is the cost. Before you make your decision on whether to go down the invoice financing route, you do need to do your sums to ensure that it will be truly cost effective. You also need to consider the size of the annual minimum fee, the length of the commitment period, and even the small print on the agreement. Some factoring companies set minimum periods of twelve months plus a notice period of three to six months. Care should be taken when comparing contract lengths and notice periods as these can vary dramatically, and will have an impact on when you can exit the facility.

Some small businesses worry that using a factor might lead to a loss of contact with their customers. In this case, you need to choose a factor with a flexible approach to customer handling, which will allow you to set the terms on which they deal with each individual customer.

Another aspect of using invoice financing which worries some people is the possibility that their main bank might restrict other borrowing. This is rarely a problem these days, as invoice financing tends to provide more flexible funding than overdraft and is becoming such a normal way of doing business. If the problem does arise, your bank will be happier if you use their subsidiary factor rather than an independent, but this does not mean that you should allow yourself to be pressurised into this if you can get a better deal elsewhere.

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welcome to factoring
introduction to factoring
factoring - enquiry form
factoring - the facts
how does factoring work?
how does invoice discounting vary from factoring?
how does invoice financing work?
possible disadvantages of factoring
improve your business cash flow
why factoring?
how do I set up a facility?
the solution for owner managed businesses?
is factoring for you?
are your clients credit worthy?
how to reduce business risk
effective debt collection
what if your clients will not pay?
the iva procedure
why you should pay your invoices on time
what is trade credit insurance?
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