Traditionally there have been several industries, which have benefited greatly from using invoice factoring to solve their financial requirements due to their specific cash flow operation.

What characterises these industries is their uneven cash flow balance i.e. they need to pay their suppliers or work force on a more regular basis than they receive cash from their debtors.

Typical industries:

• Recruitment and Temp Agencies
• Haulage
• Couriers
• Exporters
• Manufacturers
• Special case: Insolvency Practitioners

The basic problem faced with recruitment agencies, especially temp agencies, is that they pay their temp staff on a weekly basis from their balance sheet but don’t receive payment from their contracts as regularly – this short fall in cash flow must be addressed in some manner and factoring fits the bill perfectly.

Factoring is a service that a very large percent of the recruitment industry uses and because of this there are many factors who specialise in products especially for the industry.

When we constructed our panel of factors we realised that recruitment factoring would be a popular area and this is reflected in the factoring companies we work with.

The haulage industry has been using factoring extensively for a long period of time now due mainly to its dependence on available cash flow to pay wages and operating costs of vehicles.

The cash flow crunch happens because customers are businesses who require to be invoiced, and the work is invoiced but the invoice may not be paid for a month at the least. During the period that invoices remain unpaid, staff wages and petrol must be funded – this short fall in cash can be met with a bank overdraft initially but when the company grows and the cash short fall gets larger the company can potentially grow itself out of business.

By using factoring services haulage companies are able to keep their cash flow healthy and help secure new contracts allowing them to grow.

Couriers find themselves in the same boat as haulage and distribution companies – a vast majority of their customers are businesses who are invoiced but until those invoices are paid, costs, including wages, need to be paid. This causes a shortfall in cash and a source of funding has to be found to allow the courier to continue operating.

To satisfy this need of cash to pay staff and costs many successfully turn to invoice factors. By using factoring, courier companies can get advances on their larger invoices (couriers will have many invoices – some of them will me for smaller amounts where the courier may feel it is not worth the discount to factor) to allow them cash to pay suppliers and staff.

As an export company there are several things a factor can help you with:

• Cash against your unpaid export and domestic invoices.
• Advances can be in the currency of your choice.
• Many factors will provide you with credit information on clients before you trade taking away most of the risk.

Some factoring companies will advance as much as 90% of the value of your unpaid export and domestic sales invoices and many will make advances within 24 hours of the invoice being raised.

Because customer relationships are paramount to your company’s success, the invoice factor will make sure that you remain in control of your customer relationships at all times.

Manufacturers face a problem – suppliers need to be paid to deliver supplies to continue manufacturing but when goods are sent to the wholesaler or the company making the order, the invoice raised may not be paid for a long period.

Finding the liquidity to continue to pay suppliers allows certain manufacturers to grow and prosper – those who can’t find it may go out of business even if they run a successful operation.

Manufacturer factoring allows raised invoices for goods delivered to be discounted and cashed providing the cash to pay suppliers for more raw supplies. The operation becomes more fluid and the risk of facing cash flow problems disappears.

Many successful manufacturers have used factoring and discounting to help fund their growth and provide a smother cash flow situation – many factoring companies specialise in manufacturer services and solutions due to its popularity.

One of the main goals of an insolvency practitioner is to secure lines of fines for the immediate future to allow restructuring of the company in distress – due to the nature of the funding factoring offers, many insolvency practitioners see this as the first port of call when approaching a case.

As with all other instances where the use of an invoice factor is being discussed there are must be certain qualifiers for the company in question, these being:

• invoices to be factored must be to other businesses and not private individuals
• the invoice should be simple with a clear sign-off process
• the turnover of the company should be around a minimum of £50k (otherwise minimum fees might be too high)
• there is no legal reason why invoices or debts cannot be sold to third parties

If the company meets these requirements (and a very large number do) then the insolvency practitioner can immediately bring in a factor and discount the sales ledger to offer immediate and smooth cash flow.

During the whole restructuring process many invoice practitioners retain the use of the factor until the company is in a healthy enough state to be handed back to the management – we have found that when the management retake control many are so impressed with the service they continue to use it.