A lot of businesses are always looking for ways improve their cash flow. It’s one of the most fragile, yet important financial indicators that a commercial organization has to look after. From a variety of methods for cash flow improvement, accounts receivable or debt factoring seems like the standout. It’s a way to get faster payments and optimize the stream of cash, which helps make future plans and reach larger goals. But what are the pros and cons of making a debt factoring agreement and what role can factoring software play in this whole picture? Let’s find out!

The cons of debt factoring

In business, before making any decision, you have to weigh the pros and cons of it. The same applies for accounts receivable factoring. The disadvantages of going into such an agreement are not that severe, when comparing with the pros, but still – worth taking note of. Cons of debt factoring include

  • Regular recourse factoring isn’t as beneficial and safe as non-recourse factoring
  • If you have a clientele that’s always late to pay or has bad credit rating, debt factoring might not be the best service choice (factor might not go into an agreement or you’ll have to pay large fees)
  • It’s has higher fees and is generally more expensive than some credit cards, credit lines or regular financing
  • Quite difficult to manage if you can’t utilize factoring software since these agreements usually leave a long paper trail

The pros of debt factoring

As we’ve successfully covered the negatives – it’s time to move on to the positive things. And we’re glad to announce that there are a lot more of the latter. Here is the full list of benefits that going into factoring financing agreement with the factoring company

  • It’s really great for quick boosts of cash flow – if you give out credit to your clients and announce a 30-90 day deadlines for payments, factoring really works well. With such medium-length periods, debt management won’t become a significant issue for you or the factor, meaning that you can keep clients happy with flexible payment schedules and invest into R&D or other areas of significant importance.
  • No need to wait around – instead of dwelling on a handful of unpaid invoices, you can expect the factor to transfer payments within 72 hours (tops)
  • Debt factoring is great if you’re in retail or areas where innovation and being cutting edge is super important. Thanks to factored funds, you can purchase new stock and keep the clientele happy.
  • Non-recourse factoring option offers extremely convenient and relaxing ways to improve cash flow without the usual risks. In case of any disputes, you’re not obliged to pay back the factor and they agree to inherit the loss.
  • Lower maintenance costs – no need to pursue unpaid bills or send out too many invoices.