Choosing the right accounts receivable factoring company

Choosing the right accounts receivable factoring company

Is accounts receivable factoring right for your business? Call 0800 597 4757 and our factoring team will assess you case. To avoid confusion an accounts receivable financing company is also known as accounts receivable factoring company or accounts receivable funding company.

What is accounts receivable factoring?

In the UK many business due to being new or underfinanced accounts receivable factoring. Accounts receivable factoring is a business financing method that allows a business to get its invoices paid in as little as 24 hours. Accounts receivable factoring can provide a business with the necessary capital to operate the business, pay suppliers and grow.

Please note that accounts receivable factoring is not a business loan. Rather, accounts receivable factoring involves a business selling its invoices at a discount for immediate cash. The accounts receivable factoring company waits to get paid, while the business gets immediate use of the funds to fund day to day activities.

In the UK business owners often consider accounts receivable factoring when they have a large book debt backlog building up. The hard part about accounts receivable factoring is deciding if it is right for your business?

What happens if a lot of the businesses book debts are 90 days old?

The age of an invoice is very important to a factoring company. Any outstanding invoices or accounts receivable over 90 days much harder to be factored.

Advantages of using an accounts receivable factoring company?

  • By a business using a factoring company it actually gets to outsource the whole accounts receivable department.
  • Factoring frees up unpaid accounts receivables or invoices allowing more cash for day to day use.
  • Its very easy to apply for accounts receivable factoring and there are no credit checks.
  • To qualify for an account receivable factoring company to offer a facility no detailed business plans are needed

Disadvantages of using an accounts receivable factoring company?

One of the biggest factors of accounts receivable financing is the cost. A 5% discount fee and other charges over the course of a year the costs can greatly exceed the interest on bank credit or a loan.

The costs and terms are broken down as being the following:

  1. Initial Payment – This is the percentage of the approved sales ledger that we will advance to you. When your customers pay we credit your account with the amount received, less what we are owed.
  2. Service Charge – This is the fee for carrying out the management of your sales ledger and credit control.
  3. Funding Limit – This will be set to cover the businesses current requirements but can be increased or reviewed as necessary.
  4. Concentration Limit – Businesses you should ideally avoid too great a reliance on a single customer. Through monitoring your sales ledger an accounts receivable factoring company will aim to keep a businesses risk limited. Exceptions can be agreed subject to the creditworthiness of the debtor concerned.
  5. Discount – The discount charge is calculated on the day to day balance of funds advanced to you. Unlike an overdraft, payments credited to your account are available on the same day.
  6. Re-factoring charge – In the unlikely event that a customer has not paid in 90 days an accounts receivable factoring company reserve the right to charge a percentage of the value of the invoice per month until it is paid.

Please call 0800 597 4757 and see whether your business can benefit from the services of an accounts receivable factoring company.

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