The advantage of Invoice Factoring as a form of funding is that you can simply utilise your invoices as an asset to raise money. Provided the customer invoiced is another business and the product has been delivered you can raise working capital. In the case of factoring as opposed to invoice discounting the lender will also collect the payment for you.
Immediate Cashflow Solution – Unpaid Invoices represent a major barrier to growth for many small businesses. A factoring facility will not only provide the cashflow your business needs, but also a highly experienced credit control team at the factoring company to collect the payment for you. For small young businesses and start ups this can be essential for growth. Allowing them to focus on building more customers with the working capital released by factoring to purchase stock or employ more staff.
Raise More Cash Through Factoring – It is common for businesses to approach their bank for an overdraft or loan in the first instance, but the amount advanced can be significantly less than 85% of your current trade debtors (outstanding invoices). Fixed term loans and overdrafts represent a greater risk to banks. Even if you present a business plan with projections and assurances about your ability to repay the loan they will still tend to lend less money.
Invoice Factoring Has Simple Lending Requirements – Whilst factoring companies do have criteria and make checks before providing a facility, they focus on the debtors ability to pay rather than your trading history. Even if a company is in trading difficulties, factoring companies will consider advancing funds based on your customers ability to pay, not yours. For start up companies and those going through a bad patch this can be the vital injection of cash needed to grow.
Growing Businesses and Growth – One of the limitations of fixed term loans and overdrafts is that you need to keep running back to the lender as you require more funds. If you have a factoring facility the amount of cash available to you grows as you invoice more customers. Clearly there may well be time when loans are required but invoice factoring has proved an essential and flexible funding mechanism.
Factoring for Start Up Companies – Factoring can work at very low levels of turnover such as £50,000 upwards. For many start up businesses, Invoice Factoring is the only viable form of funding available. The same is true for young companies where a trading history and track record is limited. Another important aspect is the fact that the back office credit control is provided for when using a factoring facility. With some industry sectors such as recruitment, factoring companies provide a complete billing and collections service so that you really can get on with the job in hand.
Invoice Factoring – How it works
- You send invoices to your customers and a copy to the factoring company.
- You get paid up to 85% of the invoice value straight away.
- The factoring company takes responsibility for credit control and collects payment from the customer.
- When the invoice is settled, you get the balance less the agreed fees
- For added protection you can include ‘bad debt protection’ to reduce the risks should a customer go bust!
Find A Factoring Company
Factors provide a range of services. As a result performance and suitability can vary. Because we work with companies across the UK we get regular feedback on providers. As factoring brokers, we understand the different factoring services available and can get you to the right factoring provider quickly.
Find out how much finance you can raise on 0843 596 1145
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