What is factoring and how does it work? What are the benefits and what are the costs? How will factoring benefit my business? What do I need to do to get a factoring facility? Will it allow my business to grow by improving my cash flow?

These are some of the many questions that a business may wish to answer before making an approach to a factoring company in respect of obtaining a factoring facility. Where should they look for the answers?

That is where we come in. Our site is designed to give an insight into factoring and how it can provide increased cash flow by releasing working capital tied-up in trade debts.

There are essentially three elements in factoring:

a) The service element – the factor takes over the sales ledger and credit control functions being responsible for the collection of invoices as they fall due for payment.
b) The finance element – as invoices are raised they are assigned to the factoring company who will then make an initial payment against each invoice of an agreed percentage of the value of that invoice – normally 80% but can be as high as 85% or even 90% in certain industries such as recruitment.
c) Bad Debt Protection – this can be added to the facility if required and can provide 100% protection on each customer subject to credit limits set by the factor.

The three elements above can be taken singularly (except the bad debt protection) or all together or as combination of any two of the three. There is a considerable amount of jargon used by factoring companies some of which is explained below in respect of types of facilities on offer:

Examples of Factoring Facilities on offer

a) & b) Known as RECOURSE FACTORING as the factor has recourse to its client
should the customer fail to pay – normally a recourse period is offered of up to
120 days from the end of the month in which the invoice is issued.

a) b) & c) Known as NON-RECOURSE FACTORING as provided the client trades
within credit limits set by the factor 100% of the value of the invoice will be
paid should the customer go bad.

a) only A COLLECTION ONLY SERVICE can be provide as a method of outsourcing
the sales ledger and credit control functions of a business. This can include c)
if required.

b) only Where only the finance element is required with the client maintaining the sales
ledger administration function this is known as AGENCY FACTORING and
can be either on a disclosed basis or as a confidential facility i.e. notice of
assignment is not given to the customer. This can also include c) if required.

If you would like further guidance in respect of the type of facilities on offer and which one would suit your business please contact us and we will be pleased to assist you.