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What is asset based factoring?

HomeFactoringWhat is asset based factoring?

What is asset based factoring?

Asset based factoring is often referred to as ‘Revolving Credit’. Asset based factoring Factoring (or as it is sometimes known – Invoice based Finance) is a flexible funding and collections service which releases cash tied up in outstanding customer invoices, bridging the cash flow gap between raising an invoice and getting paid. Asset based factoring is a common method for business to release much needed money from their unpaid invoices.

Why is asset based factoring useful?

In the UK there are thousands of companies that, due to the lack of assets on their balance sheet, find it very difficult to borrow money from banks or other lending institutions. This is a perfect scenario where asset based factoring can turnaround a situation.

The advantage of asset based factoring is that the process offers a alternative method to borrow money based on the level of sales the business makes. Therefore the major advantage of asset based factoring is that it is flexible and the asset based factoring facility will increase as sales increase.

Who is asset based factoring for?

Any businesses who offer their customers’ credit should consider asset based factoring. Asset based factoring is useful for small, undercapitalized or rapidly growing companies because they often suffer from cash flow problems because their working capital is tied up in accounts receivable.

Why do so many businesses need asset based factoring?

  • They need to turn invoices into immediate cash to pay current expenses,
  • They need to buy stock,
  • They need to purchase equipment
  • They need to repair equipment
  • They need to expand, etc.

What sort of businesses should consider asset based factoring?

Any business that generates invoices on credit should consider asset based factoring:

  • Manufacturers,
  • Distributors,
  • Service industries,
  • Trucking/transportation

Why do businesses that use asset based factoring continue to use it?

Businesses which us asset based factoring feel that it’s a constant and expandable source of business finance – if they win the order, they’ll get a significant percentage of the invoice value in cash as soon as they submit the invoice to the factoring company.

What are the alternatives to asset based factoring?

Asset based factoring is a useful tool for helpline a business fund its working capital but many business owners do not like asset based factoring because they don’t like third parties collecting invoices from their clients. For this reason many businesses use asset based “Invoice Discounting”. Invoice discounting is an alternative way of drawing money against your invoices. However, your business retains control over the administration of your sales ledger. It can provide a cost-effective way for businesses to improve their cashflow. Invoice discounting is similar to asset based factoring.

What is asset based lending?

Asset Based Lending is when an organisation lends money to an organisation against their property, plant, machinery, stock, or sometimes even their brand name. It delivers sophisticated solutions for a variety of scenarios including growth, MBOs, MBIs, mergers and acquisitions, refinancing, turnarounds, and public to private transactions (across both a European and a global arena). It is also not uncommon for several Asset Based Lenders to work together in what is known as a ‘syndication’, to combine the lending power required.

Can a business used Asset Based Factoring in conjunction with asset based lending?

Yes, asset based factoring and asset based lending can work together to help businesses in need of a cashflow needed turnaround

You can get a quote on asset based factoring today by calling 0800 597 4757 or completing the form online.

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