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Invoice Factoring

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How Invoice Factoring Works
Find out how invoice factoring works.

Invoice Finance Cost Calculator
Find out how much Invoice Finance will cost you.

How To Improve Cash Flow
10 effective ideas help you improve your cash flow

The Difference Between Factoring & Discounting
Exactly what defines these two forms of finance

Is Invoice Finance Right For My Business?
Things to consider regarding invoice finance

Glossary Of Terms: Invoice Finance
Industry jargon explained

Invoice Finance v Overdrafts and Loans
The differences between invoice finance and loans

Fees and Conditions of Invoice Finance
Things To Be Aware of With Invoice Finance

Invoice factoring can help to solve your cash flow problems. Do many of your clients take 30 days or more to pay? Invoice factoring could be the answer to this problem.

With invoice factoring you sell the debt of a particular invoice to another company called a factor. This will be sold for less than the invoice is worth. You will not receive the full value of the invoice, but you will not have to wait for the client to pay the invoice before you receive the money.

The factor will tell you how much they will pay you for the invoice and you will receive a percentage of this money up front.

Once this is done the factor will usually inform the debtor that they now own the debt and the factor will be responsible for collecting the money. Also if the debtor does not pay the money owed, it is the factor that will take this loss or be responsible for taking further actions to recover the money owed.

As the seller of the invoice, you will get the upfront payment quickly and this guaranteed regardless of whether the payment is ever collected from the debtor. The only downside to you as the seller of the invoice is that you will not receive the full amount of the original invoice.

Once the debtor has paid the factor you will receive the remaining amount of the money owed to you by the factor. So basically you will receive your money in two parts. One the initial amount paid as soon as the deal had been struck with the factor and a second amount once the money has been collected from the factor.

Some factors will charge you interest based on how long it takes for the debtor to pay. Also some will charge a flat service charge. These will be deducted from the amount the second payment you receive from the factor.

As the seller of the invoice you must not collect the money from the debtor for the invoice you have sold. This is forbidden as the money owed for this invoice is no longer owed to you. You can of course collect money owed by the same debtor on other invoices that you have not sold.

There are many invoice factoring companies and it is a good idea to shop around to make sure you get the best deal. There are various elements to compare when looking for invoice factoring services. These include the percentage that you receive of the total value of the invoice, are their additional charges associated with the transaction and do you get charged interest based on the time it takes the debtor to pay.

Invoice factoring is different from a bank loan. You are not borrowing money, but simply selling your invoices to another company. Many businesses that are not able to get a loan will be able to use invoice factoring services.

Key Features

	Fully Outsource Your Invoicing
	Up To 95% Of Invoice Value Available
	Bad Debt Protection Available
	No Need To Factor All Customers
	No Setup Fees, Fast Process

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User Comments:

From: Robin Gaines

Having a factoring facility, in the current uncertain trading environment,offers the flexibility many small and medium business owners are looking for, in that is linked to actual sales volume ; so that you have it, and pay for it,when you need it, but not if anticipated volumes are not achieved.
The ability to credit check new customers and to have credit cover, together with professional outsourced credit control, without the costs of employing a credit controller, makes growth more sustainable, without taking up undue management time or draining working capital.
From: Robin Gaines

Invoice Discounting offers the advantages of working capital matched to growth but allows you to conduct you own credit control, which for a business turning over £1.5m plus can reduce the cost significantly. – Most invoice discounting facilities provide funding at a much lower rate than current bank overdraft funding and combine this with much higher levels of funding.
From: Robin Gaines

What Factoring/Discounting can do for you – Examples of Real Factoring or Discounting Clients
1. – Steel stockholder and fabricator West Midlands
22 Year old working for a large steel importing group, sold car and injected £10k from this to start the business, originally trading from a tiny office above a hairdresser, using the funds from factoring to buy more steel, originally without holding stock.
Through rapid growth quickly moved to own site nearby and purchased cutting machines, to increase margins. – At this stage able to offer full time employment to elder brother, to improve office coverage. – Bad debt protection and credit advice saved company from losses when a major customer ceased trading.
Now using invoice discounting and trade finance and turning of C. £25m employing 100 people and with a business worth around £4m.
2. - Manufacturer of plumbing accessories
– Owner designed an original solution for plumbing installers to prevent pipe rattle and improve appearance of pipe installation – Started manufacturing in his own garage, but demand allowed rapid growth – Advised by accountant that co. was in danger of overtrading, so introduced to an invoice discounting company that was able to offer significantly increased working capital facility. – Addtional headroom allowed MD to design and develop a broader range of products, further increasing turnover.
The company now rarely uses funding from the invoice discounting facility, because it has become cash rich, however the facility is retained to enable the flexibility to expolit opportunities that become available. – company now has net assets of £2m.

3. Computer harware distributor – started by two Harvard MBA graduates, who used invoice discounting as an alternative to going public – Had an £18m line of credit which allowed £8m swings in daily cash availability to be handled without hands on management. – MD also valued the flexibility to exploit opportunities, without the reporting requirements incumbent on a public company.
The two founding directors eventually went public allowing them an early retirement selling their stakes for £250m each.
From: Iris on Factoring

One of the few options to the small business seeking additional funding, and that has been gaining traction, is debt factoring, also known as invoice factoring. When a business signs an agreement with a factoring company, they have a great deal of flexibility in their options. Using invoices as collateral is done frequently by businesses both small and large, so this makes invoice discounting a feasible option.