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.

Invoice Finance Interest Rates

Interesting to compare the cost of money today, as compared to the past. The Bank of England’s Monetary Policy Committee today held Base rate at 0.5% – and it’s been that rate since the 5th March 2009. In January 2001 it was 6% and in January 1991 a hefty 13.875%. Money is cheap in comparison, assuming the bank will lend it to you, but businesses need to watch for the little tricks some lenders apply by way of minimum base rates.

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.