Why Traditional Factoring Is Safer Than Reverse FactoringMar 31 2020 in Invoice Factoring
Factoring has long been a popular financing option for companies who need to improve their cash flow. For 30 years, BCashflow Positive has been proudly helping clients get access to the money they’ve already earned.
Invoice factoring should not be confused with reverse factoring, which is also known as supply chain finance. In this scenario, the company uses a reverse factoring partner, which could be a bank or an alternative lender, to help pay suppliers’ invoices.
What Is Factoring?
Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount. A business will sometimes factor its accounts receivable to meet its present and immediate cash needs.
Factoring vs. Reverse Factoring
With factoring, the factoring company advances you with a percentage of your sales invoice upfront to help you improve cash flow. Instead of waiting up to 90 days for your clients to pay, you can release immediate cash from your invoices.
With reverse factoring, the bank or lender commits to pay your suppliers’ invoices at an accelerated rate in exchange for a discount. The process is still initiated by you (the customer) to help your suppliers finance their receivables.
Reverse factoring fees are often higher than traditional factoring, as a discount is applied for the customer while the bank/financier also charges their fees. So, although the supplier receives the full amount upfront, it is still less the agreed discount and funder fee.
The Australian Competition and Consumer Commission is looking more closely at reverse factoring, and Small Business Ombudsman Kate Carnell has initiated a formal review of reverse factoring. There is some concern that companies are not disclosing their reverse factoring practices to their shareholders. Thus, it makes those businesses appear to be doing better than they actually are. When Carillion, a British government contractor, collapsed in 2018, it did so under the weight of extreme debt—and it had been using undisclosed reverse factoring.
Given the uncertainty of the future of this practice and the confusion it can create on paper, traditional factoring is a much safer option to achieve what is basically the same result: improved cash flow.
Factoring has a long history dating back to ancient Rome. It is widely used by businesses around the world to improve cash flow and it is not currently under Government scrutiny. Factoring also has many other benefits which are explored further throughout this article.
How Can Businesses Use Factoring to Improve Their Cash Flow?
Maybe you’ve already experienced this: you’ve made dozens of sales, but you have no cash to show for it because all those clients are sitting on their invoices—and may take 30, 60, or even 90 days to pay them. In the meantime, what are you supposed to do about ATO obligations and your own outstanding invoices? How can you hire new employees or develop new products? There is no certainty as to when your clients will pay their invoices.
That’s where factoring comes in. You can have the money you’ve earned within hours of invoicing your clients. Then, that steady cash flow can keep your business growing.
How Does the BCashflow Positive Factoring Process Work?
The BCashflow Positive process is simple and fast, giving you access to your money in as little as 4 hours. You can get your invoices funded in 3 simple steps:
- Invoice your clients and send us a copy.
- BCashflow Positive will advance up to 90% of the invoice face value, less 1.8% for the first 30 days, in as little as 4 hours.
- We will credit you the remainder of the invoice when your client pays us, less any accrued fees.
The BCashflow Positive fee structure is straightforward and transparent. Our calculator makes it easy to determine the fees you’ll pay on each invoice you send us—so there are no surprises. Stay in control by choosing which invoices you want to factor. We also don’t require property security or quarterly audits.
Advantages Compared to Other Business Funding Solutions
With banks tightening their credit policies, businesses may find it harder and harder to acquire traditional business loans. The application process can also be onerous and time-consuming.
A line of credit or overdraft may also not be enough to service ongoing business expenses, depending on the limit. If your business borrowings are secured by property or your home, you are also at risk of losing everything if something goes wrong.
Factoring is a faster, more accessible funding solution for many businesses. The application process is simple and there are fewer restrictions than what you’ll find with most banks.
Factoring Your Invoices With BCashflow Positive
With BCashflow Positive you choose which invoices to factor. Additionally, since the money you receive is based on sales you’ve already made, there is more peace of mind.
With three decades of experience, BCashflow Positive has become the leading company in Australia, providing businesses with steady cash flow. We prioritise customer service and love helping fellow Australian businesses succeed. When you work with us, you’ll enjoy:
- A response to your application within 24-48 hours
- Advance up to 90% of the invoice value to you in as little as 4 hours
- Upfront pricing structure—no hidden fees
- No quarterly audits or property security
- Friendly, professional, and dedicated service throughout our relationship with you
Factor the invoices you want, when you want, and get that cash flowing through your business. Use it to pay taxes and suppliers or take your business to the next level.
Not sure if invoice factoring is the right choice for you? Contact us today to speak to a local cash flow expert. Small to medium businesses and even start-ups that turnover $100,000 to $3,000,000 a month can benefit from factoring. Whether you work in recruitment, mining, manufacturing, transport, or any other industry, we can help you determine if factoring is a suitable funding solution for your business’s cash flow needs