WHAT IS FACTORING?
Factoring is a flexible form of business finance secured against a company’s outstanding sales invoices or sales ledger. A factoring company (factor) will typically provide you with up to 90% of the value of your invoices as soon as they are issued. This releases working capital which immediately improves the cash flow of your business, enables you to pay creditors, negotiate discounts and provide liquid funds for expansion and growth.
How does it work?
Factoring can be used in the majority of businesses, and the process is easy as 1, 2, 3
- You deliver goods or services and raise an invoice as you normally would.
- The factoring company will provide you with up to 90% of the value of that invoice, with the funds in your account in just 24-48 hours.
- The remaining 10%, less the factor’s charges, are passed on once your client, or debtor, has paid the invoice.
The Benefits of Factoring
- The factoring company will fully manage your sales ledger, and be responsible for chasing and collecting unpaid invoices. This frees up your time to concentrate on growing your business.
- This also protects you from bad debts and allows you to plan with confidence.
- The finance will increase in line with sales, so you can grow without worrying about how to fund increases in turnover.
- A factoring facility is quick to set up, and is just secured on your invoices.
- Unlike the banks, Factoring Companies are actively lending to small and medium sized businesses.
What is Invoice Discounting?
Invoice Discounting is identical to Factoring, except that the collection of outstanding invoice payments / sales ledger management, remains with you, the client.