Factoring Loans

Provided by EnterpriseOne

Factoring Loans are useful when your cash is tied up in the form of credit given to your customers.

           What Is A Factoring Loan?
          Am I Eligible For A Factoring Loan?
           What Are The Advantages And Disadvantages?
          How Much Can I Get?
           What Factoring Loans Does The Government

What Is A Factoring Loan?

• A Factoring Loan is a loan granted based on your trade debts (which is money already
owed to you by customers who have not paid their bills).

• The “factor”, usually a bank or lending institution, is the one that offers the loan.

Am I Eligible For A Factoring Loan?

• You must first have trade debts in order to get a Factoring Loan.

• The factor will look at the credit worthiness of your customers in deciding whether to give you
a loan.

•    To determine credit worthiness of your customers, the factor will ask:
     o will they pay up?
     o are they long-term customers?
     o do they have financial troubles of their own?

What Are Some Of The Advantages And Disadvantages?

Advantages

• You get paid immediately for every invoice issued.

• Factoring frees you from having to chase your customers for payment.

• You can also confidently offer longer credit terms to your customers, which may help you clinch
more deals.

• The risk of bad debts is also assumed by the factor.

Disadvantages

• You do not get to collect 100% of the invoice value. Usually, the factor will take out 1-15%
of the invoice value as fees.

• Some customers do not like dealing with the factor.

• You may end up taking less care in selecting customers who pay well and on time. In the long
term, it may lower the quality of your customer base.

• You can get a loan of up to 90% of billed invoices or accounts receivable.

• However, the fees for such loans can be quite high. If the customer is overseas, the factor
may charge up to 15% of the invoice value – watering down your profits on the sale

What Factoring Loans Does The Government Offer?

•    Loan Insurance Scheme (LIS)
     Secure loans by getting them insured against default. The Government will subsidise 50% of
      the insurance premium.