We are transparent in all our dealings with clients and customers and will explain everything as best we can. If you have any questions that are not answered below then please feel free to contact us directly for a no obligation, informal conversation.
Factoring is a facility that enables you to get the money from your invoices on the day you raise them rather than wait 30, 60 or however many days it normally takes.
The factoring company may also help with chasing and collecting the invoices on your behalf.
How does factoring work?
Factoring consists of the following four steps:
- You send your invoices to your customers as normal but with a notice asking them to pay the provider.
- You send a summary sheet and a copy of the invoices to the provider. The provider then makes available up to 90% of the invoice amount.
- You request funds and the provider transfer them by electronic payment directly into your bank account.
- When the provider collects from your customer, it return the balance (e.g. 10%) to you.
Anyone who needs finance to run their business can use factoring.
It is for businesses that offer credit terms and have to wait to get paid but have to pay suppliers or people quickly.
It suits young, growing companies because they often do not have sufficient capital to grow their business and they are normally pretty bad at credit control.
What are the benefits of factoring?
The main benefit is peace of mind:
- You do not have to worry about having enough funds to pay suppliers, people, etc…
- You have the peace of mind offered by effectively having your own credit control department experienced in credit checking clients and chasing invoices.
- It also means that you can separate sales and collections.
- You may be able to negotiate settlement discounts for early payment to your suppliers.
There are two main charges:
- Factoring Charge This is charged as a percentage of the value of your invoices and will normally be between 0.5% and 3.0% of the invoice value.
- Discount charge This is the rate of interest that is payable on funds advanced to you; this is expressed as a percentage over bank base lending rate, calculated on a daily basis and charged monthly. This is usually charged at 2.5% over bank base rate.
They make available up to 90% of the invoice value to you, you request funds from a provider and the provider transfers them electronically straight into your bank account. Note that you only transfer what you need, you don’t have to use your whole availability. The remaining 10% is paid to you when your customer pays.
Typically if a lender receives your copy invoices in the morning you can have funds in your bank in the afternoon.
Can I factor selected invoices only?
Yes, as long as the customer is well credit rated or credit insured.
A lender can cover your invoices against bad debts and non payment under a credit insurance policy.
Yes, many providers provides finance against sales invoices and is designed to meet the needs of smaller growing businesses with UK sales (or projected sales) of between £50,000 and £250,000 including start up businesses.
It depends on what you need funds for. If you are buying plant or equipment or property then a bank loan may be more suitable to your business. But if you need funding for cashflow i.e. because you are running out of funds to pay suppliers, staff etc. then factoring is definitely more generous and more flexible.
If I sign up to factoring, what will the impact be on my customers, and how might it change our existing relationship?
The only difference to your customer is where to send the payment and who the payment is made out to. In fact, your customer relationship will most likely improve with factoring services. You no longer have the uncomfortable task of collecting payment from your customers and your conversations with your customers will be strictly about new sales and ongoing business.
How will our customers be treated by a factoring company? How do they present themselves and communicate?
A professional and diligent provider treats your customers like they are their own, with the utmost business professionalism. Your chosen provider has a vested interest in your customers’ satisfaction and would never want to do anything to upset them and lose their business (or yours).
Will my customers think that I am in financial difficulty if they find out I am using a factor?
Quite simply, no. 100,000’s of UK businesses use invoice finance facilities. It has become a recognised and widely used form of finance for small to medium-sized businesses. If your customer has a large number of suppliers they are bound to be dealing with factoring companies already.
There are two main differences:
- Factoring includes a full sales ledger management service whereas with an Invoice Discounting facility the ledger management is left to you.
- With factoring customers’ payments are sent to the factoring providers bank account. With Invoice Discounting the payments are still made to you. The facility is not disclosed to your customers.
We will come and see you to discuss your requirements in detail. From then it normally takes 2-14 days to set up.
How will my customer know to send the invoice payment to the Factor?
You write to all your customers at the start of the factoring agreement to notify them of the change in payment procedures. You also put a notice on all your future invoices notifying your customers of who and where they should pay or we can supply you with labels to put on your invoices.