Invoice Factoring

Invoice Factoring

Many businesses are held back by cash tied up in outstanding invoices owed by trade debtors. Factoring or cash flow finance is a great way of releasing funds that are already yours, back into the company. Remember that this will also ease the need for a credit control department in your organisation and reduce costs.

What is factoring

Invoice factoring is a cash flow facility that will allow your business to raise vital working capital against the value of your outstanding sales ledger.

Firstly, for your company to qualify for factoring finance you must trade with other businesses, if you deal with consumers only then this particular commercial finance option is not available for use. A factoring lenders business model works by purchasing invoices for goods or services provided on credit terms, for example 30, 60 or 90 days. The factor will purchase invoices (and therefore take ownership of the debt) on day of issue in return for a slice of your turnover i.e. "the discount", advancing up to 90% of the invoice value with the balance less the agreed costs when the trade debtor settles the invoice. When determining whether to offer invoice advances any lenders primary focus is on the client base and the number of transactions rather than how old your company is or it's previous credit history.

However any cashflow problems should be problems of growth for which factoring will provide a solution, rather problems of a failing company.

How much does factoring cost?

There are various costs to factoring that can apply and here we highlight most of them, those in italics only apply in some cases.

• A one off set-up fee, for example 1% of the facility.
• A regular service fee based on the turnover facility offered, this will in the 0.75%-2.5% range.
• Interest on any outstanding balance, this will be in the range bank base rate plus 1.5%-3%.
• A charge for each invoice issued, for example £3.50p

The actual charges and costs depend very much on individual circumstances, not all will apply with some businesses achieving lower rates ands some higher than the guideline list provided above. One way of thinking of factoring is a debt collection and sales ledger management service as once an invoice is sold the factor is solely responsible for the debt. Your own businesses debtor collection costs will effectively disappear.

How we can help

Debtor finance is served by many commercial lenders and therefore competition in the marketplace is strong. However there are major pitfalls to be avoided, we ensure that any factor we use is will look after your reputation by treating your customers fairly. Why not discuss with us today your factoring finance requirements!