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:
  
  
  • will they pay up?
  • are they long-term customers?
  • do they have financial troubles of their own?

What Are Some Of The Advantages And Disadvantages?

• 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.

• 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.

How Much Can I Get?

• 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.