On the websites of Spring Singapore and financial institutions such as DBS Group Holdings and GE Commercial Finance.
What does it mean?
Factoring is a specialised financing scheme that lets businesses convert their invoices into funds by 'selling' them to a 'factor', usually a bank or lending institution.
Suppose a firm owes you $10,000 and the money is due in a few months.
Under traditional factoring arrangements, you would sell your invoices to institutions that provide factoring services, such as IFS Capital, DBS, OCBC Bank or GE Commercial Finance.
The factor may advance up to 85 per cent of the invoice value to the business. In this case, you would be lent $8,500 immediately.
Two months later, the factor would collect the full $10,000 from the debtor firms and return $1,500 ($10,000 minus $8,500) to you.
There is an interest charge applied to the money lent to you, as well as a commission charge on invoices factored, to be paid to the factoring firm.
Why is it important?
Your company needs immediate cash to smooth out its cash flow, meet increased spending for raw materials or pay for new hires.
So you want to use this term. Just say...
'Factoring is an option that your company can consider if its cash position is not strong and it needs to pay the salaries of its workers.'
This article was first published in The Straits Times on May 11, 2008
