Debt factoring

• What is debt factoring?

  A type of source of finance
• When does debt factoring make sense for a business?

  When a business has many credit sales
• What happens when a business sells its debtors to a factoring company?

  The factoring company pays a percentage of the debtors' value
• What percentage of the debtors' value does a factoring company typically pay?

  Approximately 90%
• If a business has debtors worth $100 \text{ million pounds}$, how much will they receive from the factoring company?


  $90 \text{ million pounds}$
• What profit does the factoring company make if they collect all debtors worth $100 \text{ million pounds}$?


  $10 \text{ million pounds}$
• How does debt factoring improve a business's cash flow situation?

  It provides immediate cash instead of debtors
• What is a potential issue for businesses using debt factoring?

  Factoring companies may aggressively collect debts
• How might aggressive debt collection affect long-term customers?

  Customers may dislike being chased for payments
• What are the pros and cons of debt factoring for businesses?

  Pros:

  • Immediate cash flow improvement
  • Reduces debtor management burden

  
  

  Cons:

  • Potential for aggressive debt collection
  • Impact on long-term customer relationships