Invoice Discounting

At its heart Invoice Discounting contains the basic characteristic of Factoring in that it’s the sale and purchase of a businesses accounts receivable at a discount. The core aspect that stands invoice discounting apart from factoring is that invoice discounting is usually a confidential agreement. Under the terms of a traditional Factoring facility all invoices raised carry a stamp disclosing a businesses use of the facility, with Invoice Discounting there’s no such disclosure.

As with Factoring a very simple calculation can be performed by taking a businesses sales ledger balance (business customers only) and working out 80% of this figure.

This is how much money may be available instantly so if it’s a materially larger figure than the business receives by way of an overdraft then there may be benefit in exploring further.

As can be expected from a business funding tool there are hoops to go through with lenders before the benefits of the facility can be realised.

Just Factoring is a specialist, independent and importantly, experienced brokerage that helps businesses through the often complex process.

Factoring

Factoring has come a long way since its introduction into the UK in the early 1960’s. Initially viewed with suspicion it’s now a widely used (nearly 50,000 businesses in the UK) and accepted means through which a business can generate working capital.

The word Factoring, whilst literally referring to the sale and purchase of an asset, in this case a businesses accounts receivable (debtors) at a discount, now encompasses some other facilities notably invoice discounting.

Key to Factoring is the finance it generates enabling a business to exist and grow, especially at a
time when traditional bank facilities are coming under so much scrutiny.

The mechanics behind factoring are fairly basic. If a business looks at how much it is owed by its business customers in total and works out 80% of this figure then in general terms that’s how much may be raised.

However, no two businesses are the same and no two factoring companies are the same either. As time has gone by the industry has acquired its own jargon which can be very confusing to a prospective buyer.

Just Factoring is a specialist, independent and importantly, experienced brokerage that helps businesses through the often complex process.

Factoring Companies

With the growing popularity of Factoring and Factoring type facilities has come a sharp rise in the number of companies providing such facilities. What was once almost the sole preserve of the UK Banks is now crowded with all manner of providers from the banks themselves through to small, independent providers sometimes operating on a regional basis.

There are privately owned providers, venture capital owned, taxpayer owned, American owned, French owned and so on and just about all the providers have merit in their offerings.

They all have their likes and dislikes and some will enter into sectors such as construction where others fear to tread. Different pricing policies mean that the same business, talking to three different companies will get three different price offerings.

Recent developments include the provision of single invoice factoring, historically not offered in favour of whole turnover agreements. Likewise the arrival of a web based auction system through which businesses can have investors bid to buy invoices is an innovative and potentially exciting new product.

Overall there are a lot of variations on the general factoring theme so finding the right one for your business can be a time consuming and not always rewarding exercise.

Just Factoring is a specialist, independent and importantly, experienced brokerage that knows the factoring companies.

Factoring Brokers

As Factoring has developed so has a broker market offering advisory and introductory services. A broker should obviously know the market, the providers and be able to explain, without the use of industry jargon, how a facility works and what costs, benefits and pitfalls may be encountered.

By using a broker a business should expect completely impartial advice. Brokers are paid by lenders on a success basis so any broker attempting to take a fee direct from a business should be avoided.

Very often a business will secure a more competitive rate by using a broker in preference to going direct to a lender. Likewise a good broker will know to which provider a prospective user should turn. All Factoring Companies have different criteria as well as varying likes and dislikes with regard to industry sectors.

It’s difficult to know to which broker a business should turn. Web based ones used automated costings to provide indicative prices but at best these are only going to be a rough guide and at worst misleading. No two businesses are the same so they all have differing costings.

Experience is vital, the market changes frequently so a broker with a detailed knowledge will have an in depth insight.

Independence is also important, ideally the broker should not be advising a business with an interest elsewhere, either through being owned by a factoring company or professional services firm.

Just Factoring is a specialist, independent and importantly, experienced brokerage that helps businesses through the often complex process.

New Start Recruitment Business – Ready, Steady, Cook!

We had a call today from an individual looking to set up a recruitment business for chefs. His personal bank would not help, mainly as he is not a home owner. We have put together a sensible business plan and brought in a couple of possible factors to compete for the business, so far one has already come back with an in principle offer. There are a lot of providers competing for business so even if the bank says no, there may still be help out there. Finding money is not that easy which is why a specialist, independent, broker can add value.

Invoice Finance Guarantees

Most Factoring companies will ask for your Guarantee to back up the agreement, but there are marked differences in the type of guarantee so it really is worth checking the small print. Guarantees are also described as warranties or indemnities and in some, albeit rare, cases the factoring company will ask for a supported guarantee which involves them taking a charge over your home. To fully understand the possible implications of giving a guarantee legal advice is recommended. Given the fact there are levels of guarantee it may be worth shopping around.