A comparison of factoring with another forms of company financing is not always possible due to the fact that each form of financing requires certain conditions to be launched. Let us first look at each individual to effort to compare them. Equity is the first, cheapest and most apparent origin of financing for each company. However, it requires advanced revenues and low costs from our business so that the net profit which remains at the end of the year is sufficiently high. We besides gotta leave the profit at the company and not pay it for our current needs.
Equity: first step in financing
Equity is the first, cheapest and most apparent origin of financing for each company. However, it requires advanced revenues and low costs from our business so that the net profit that stays at the end of the year is sufficiently high. We besides gotta leave the profit at the company and not pay it for our current needs.
Share issuance: equity increase with investors
The issue of shares is another origin of financing that increases the equity held, but in this case at the expense of giving up part of the company's shares. The stock issue can be private, targeted at a circumstantial investor. He then becomes our partner in exchange for the capital paid to the company. It may besides be a public issue, but here the procedure is highly formalised and complicated and concerns companies with established marketplace power and an appropriate scale of activity. Share issuance funds may be utilized for any purpose.
Bank loan: The most popular form of financing
Credit is by far the most common method of financing the company and usually the first choice of each entrepreneur. If we deficiency capital, we want to improve liquidity or increase the scale of our business, then the first steps are addressed to the bank that serves us. In order to receive bank financing, our company must be in good financial condition and have no backlog. In the case of higher amounts, it is besides essential to have collateral, most frequently in the form of a chargeable mortgage. The repayment shall take place either in fixed monthly instalments or at the end of the financing period. Overdrafts can be utilized for any purpose, while targeted loans finance circumstantial projects.
Leasing: financing the acquisition of fixed assets
Leasing is another widely utilized business finance tool. The basic regulation is the anticipation of utilizing it. Namely, it is possible to finance a circumstantial acquisition of a durable product – a car, machinery, equipment but besides computers, printers and even furniture. The lessor requires us to be in good financial condition, while the collateral of the contract is the object of the lease itself, which becomes ours only after payment under the conditions laid down in the contract. Leasing can so be utilized to acquisition fixed assets.
Loans: diversity and flexibility of the financial instrument
The debt is simply a very diverse tool. There are debt companies on the marketplace from which tiny amounts can easy be obtained. We besides have funds that lend for real property collateral. You can besides get a debt from your household or friends. The cost of specified backing can be very different but is frequently rather high. The conditions to be fulfilled by our company depend solely on the lender and can be very different. We can find the mark here freely or not at all.
Bonds: formalised financing for larger enterprises
Bonds are a much more formalised form of external financing. The issue of bonds is reserved alternatively to larger entities with established marketplace position. A company that tries to issue bonds must meet a number of conditions, undergo complex financial analysis and yet find those willing to acquisition its debt papers. This is most frequently done through the Brokerage House. specified backing must besides have the appropriate scale to make it profitable. These are amounts starting with at least respective million PLN. Bonds can be utilized for the purposes set out in the bond issuance conditions.
Factoring: flexibility in financing current business
Factoring Against the background of the above, under certain conditions, this is simply a very flexible form of financing the current business. The basic condition for its launch is the issue of deferred payment invoices against reliable, solvent counterparties. The operator will examine our trading partners, give them adequate factoring limits and we can give them to finance the invoice as shortly as they are issued. It is short-term funding, but it definitely improves financial liquidity by putting funds at our disposal immediately after the invoice is issued. So we can allocate them immediately to further purchases and make higher turnover. Factoring is not only backing but besides a number of additional services. We receive an in-depth analysis of our counterparties and an indication of the risks associated with them. This helps to reduce the failure of non-payment. If our contractor fails to pay the factor, he will supply us with professional recovery first amicable, and if essential besides court-mandatory. The funds obtained from the facturing agreement can be utilized for any purpose.
Strategies for the usage of different forms of financing
As you can see, each form of financing has its disadvantages and advantages. Each can only be utilized under appropriate conditions. The best strategy is to usage as many sources as possible at once. For example, we buy fixed assets through leasing. Current liquidity is secured by an active factoring agreement. On the another hand, we finance larger investments utilizing credit. We are besides building a financial buffer by gradually expanding equity. We must remember that for various reasons any origin of backing can be withdrawn or not extended. If we only usage 1 source, it can be a large problem for our company. If we usage several, we have more flexibility and the anticipation to replace 1 origin of backing with another without much perturbation for our company's business.
