Q. Show benefits of factoring?

Factor finance

The factoring company will progress up to 80% of the face value of invoices raised. This would permit Doe Ltd to pay its trade payables promptly and perhaps take advantage of any early payment discounts available. It would as well allow Doe Ltd to finance its growth from sales rather than by seeking external finance.

Reduces administration costs

The factor would invasion the administration of Doe Ltd's sales ledger allowing a reduction in administration costs in the longer term.

Factor expertise

In the areas of credit analysis as well as receivables collection the expertise of the factor is likely to be higher than Doe Ltd's leading to lower bad debts as well as more efficient collection of amounts owed by receivables.

Credit protection

If the factoring is with no recourse Doe Ltd will be effectively insured against the possibility of bad debts although this will be included in the factor's fee.