Invoice financing: Saint or sinner?
Richard Hallsworth weighs up the pros and cons of invoice financing as an alternative funding solution during the recession.
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Good balanced article
This is a good article on factoring. I like the balance of pointing out the pro's and the cons.
The issue in the downturn is that turnover and debtors react quickly and as such so does the finance against the debtor book. The article rightly points out that purchases hopefully drop at the same rate.
If the facility covers the cost of sales and is purely used to fund cash flow then everything is ok.
Problems arise when a factoring facility is used to fund losses that are a result of fixed costs and dropping turnover. Forward planning and a quick reaction (i.e. cost cutting, redundancies, etc..) are a must.
In an upturn a factoring company can provide valuable, flexible finance that is linked directly to growth.