Factoring companies are a very important part of trade finance give that they are able to provide short-term financing among businesses that carry large invoices. One of the positive and absolute strengths of these businesses is that they are able to generate substantial streams of revenue by providing capital as a function of invoice financing. These businesses generate substantial gross margins from their operations. Additionally, even during times of economic recession – the demand for factoring companies remain strong.
For weaknesses, factoring companies do take a substantial amount of risk each time they provide capital against an invoice. It is imperative that most factoring businesses develop an extensive lending protocol in order to ensure that defaults are kept to a minimum. Additionally, there are numerous regulations that surround the world of asset-based lending and factoring, and a qualified attorney must be retained in order to ensure that he factoring business remains within the letter of the law at all times.
For opportunities, most factoring companies expand by simply acquiring additional lines of credit that can be used in turn to finance invoices on behalf of clients. These businesses can also expand by simply acquiring other financial companies that do provide specialized asset-based lending specific for invoice financing. Most factoring companies maintain an expansive presence on the Internet in order to ensure that clients are able to very quickly find companies that are in need of invoice factoring.
For threats, international finance does carry a substantial number of risks especially in the event of a default. This is primarily due to the fact that if in internationally focused invoice goes into default, there is a difficulty in recourse in regards to obtaining the original amount of capital. Additionally, most factored invoices are done on a nonrecourse basis and in the event that the purchaser does not pay – the factoring company can be held responsible for the amount lost. These risks are often remedied by a numerous number of mechanisms that allow for the selling company to take on partial responsibility for any unpaid invoices.