Invoice factoring is used by businesses large and small to release the cash tied up in their debtors books. Often frowned upon by those not in the know it is one of the secrets of success of a growing number of UK businesses, providing the funds they need to grow.
How Does It Work?
Unlike a lot of business finance facilities invoice factoring is very straightforward and benefits your business in many ways. When you sell your goods or services and raise an invoice you also send a copy to the finance company (the factor). They will then make up to 85% of that invoice available to you, usually within 48 hours.
You choose if and how much you wish to draw on and most factors have online facilities to let you easily manage your funds. Traditionally Invoice Factoring companies will manage the settlement of invoices and will chase where necessary and this is a big benefit for many businesses because it reduces their workload. But if you would prefer to keep control, many factors will now provide a confidential service where you liaise with your customers and chase payments.
Once the invoice has been settled by the customer the remaining amount is paid to you, less any fees.
What Are The benefits Of Using Factoring?
In todays economic climate lending for businesses is much harder to obtain, customers are holding on to their cash and taking longer to settle invoices. Because Invoice Factoring uses your debtors book as security it is much easier to find and because funds are available within a couple of days your cash flow is significantly improved.
Invoice Factoring grows with you turnover, the higher your revenue the more you can draw on, allowing you to focus on growing your business instead of juggling your cash flow. Funds are available very quickly so you can leverage discounts with suppliers for early payment of invoices.
If required factoring companies will happily manage the settlement of your invoices, chasing late payers and keeping on top of outstanding amounts so you don’t have to.
Do I Have To Factor All Of My Invoices?
No, this is a thing of the past. You don’t have to factor all of your invoices, most companies allow you to choose which invoices you want to submit and many will even offer bad debt insurance.
What Are The Costs Of Factoring?
The costs vary between lenders but usually consist of a service fee and interest against the amount of funds you draw against. To find out more about the costs or to compare lenders use our free comparison tables.
Do I Have To Sign Up To A Contract?
Because of the nature of most factors will require a contract to be signed although 12 months is the maximum. Some invoice factoring companies do off trial periods, we show you the latest trial offers in our comparison tables.
Can I Factor Just One Invoice?
Yes, many companies now offer facilities to factor single invoices or specific customers, if you a customer that takes a long time to pay or a particularly big order to manage this could be ideal.
Why Not Just Get A Loan Or An Overdraft?
Depending on your circumstances and how much you need, a loan or overdraft might be the right choice. But you may find you need more funding or a more flexible facility, in which case you should consider invoice finance. It doesn’t cost you anything to find out and we will happily provide three no obligation proposals.
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