Factoring as an efficient financing solution
Using factoring as a source of financing is a secure way to quickly gain access to liquid assets without increasing debt. The flexibility it offers makes factoring an attractive option for many companies.
A company’s cash flow provides insight into how much money flows in and out during a given period. A stable cash flow is essential to ensure that salaries, debts, bills, and other obligations can be paid on time.
There are various financial services that can help create conditions for healthy cash flow and sustainable growth. Many companies have large portions of their working capital tied up in accounts receivable, where payment terms and processes can lead to long waits before payment is received. In such cases, factoring can be a suitable solution, by selling issued invoices, a company gains quicker access to liquidity.
– One major advantage for the client is reduced administration around managing payments and reminders for overdue invoices, saving time and resources that can instead be devoted to the company’s core operations, says Anna Karin Klav, Key Account Manager at Norion Bank.
– At Norion Bank, we primarily work with medium-sized companies; our factoring clients may be in a growth phase or at a stage where they need to free up capital for future investments, adds Paula Segerpalm, Head of Operations in factoring.
Factoring is a flexible product tailored to a company’s needs and can be advantageously combined with other services, such as order financing. This allows for financing of purchases and investments connected to new orders and projects. Norion Bank customizes the setup based on the company's operations, revenue, and other circumstances.
– Factoring requires a deep understanding of the client’s business and market to find the most beneficial solution. The best method depends on the company’s specific needs and preferences regarding risk, control, and accounting, says Anna Karin Klav.
Quick access to liquidity boosts cash flow, which in turn creates a ripple effect.
– The sooner you get paid for your invoice, the faster you can reinvest the money into new business and pay suppliers, which in turn can give you stronger negotiating power, says Anna Karin Klav.
When invoices are transferred, liquidity improves and key financial metrics such as working capital and debt ratio are strengthened.
Liquidity has always been important, especially for medium-sized companies, but businesses of all sizes around the world now face increasing risks. This makes strengthening cash flow more important than ever. Merja Johansson, Senior Financing Officer in factoring, notes that the perception of factoring as a financing method has changed significantly.
– Ten years ago, the typical client was a newly started company, but today factoring is seen as a service for all types of businesses, she concludes.