How does Factoring future cash payments involve for a small to medium business?

The UK offer independent factoring future cash payments advice to businesses of all sizes.

There is an ancient proverb that says,’A bird in the hand is worth two in the bush’. This means that’s its better to have something now rather than the possibility of something at a later date. This proverb actually relates to money as its better to have money in your business bank account rather that having to wait to be paid. The process of factoring future cash payments equates to the same thing.

The process of factoring future cash payments in the UK is a financial service for businesses of all sizes whereby a business sells its unpaid invoices to a factoring company at a discount in exchange for upfront money of up to 95% in value of the invoice with which to finance continued business.

The advantages of factoring future cash payments:

  • Business owners find factoring future cash payments very useful to fund working capital
  • Factoring future cash payments helps a small business compete with a larger or more established business
  • A business will see a pattern of improved cash flow when using a factoring facility.
  • A factoring facility can future proof a firms collection department because factoring can invoice outsourcing its sales ledger and freeing up your time to manage the core business activities.
  • Factoring relieves the pressure of having to wait up to 90 days for customers to pay invoices.

The disadvantages of factoring future cash payments:

  • Factoring future cash payments is generally suitable for all business types, but it depends on sales.
  • Factoring future cash payments is subject to lots of charges and small print in contracts
  • A facility which factors future cash payments reduces gross profit as it takes a percentage of all the invoices.
  • The business and its owners will still be liable for bad debts if the invoices don’t get paid.
  • Some customers do not like dealing with businesses that use a commercial factoring company to collect invoices.

The costs of factoring future cash payments:

  • Initial Payment – This is the percentage of the approved sales ledger that we will advance to you.
  • Service Charge – This is the fee factoring future cash payments
  • Funding Limit – This will be set to cover the businesses current requirements.
  • Concentration Limit – This varies from business to business Exceptions can be agreed subject to the creditworthiness of the debtor concerned.
  • Discount – The discount charge is calculated on the day to day balance of funds advanced to a business.
  • 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.

If you’d like to know more about how factoring future cash payments can benefit your business then please call 0800 597 4757 or apply online for an informal chat about your cashflow options.