Factoring, what is it and can it help with my cash flow problems.


The Factoring process

Invoice Customer

An invoice is sent to the customer who has up to 90 days to pay from receipt of the invoice.

Funds Are Released

The factoring company release an agreed percentage of the invoice value to you, usually within 24 hours.

Customer Pays Invoice

The customer pays the factoring company directly and in full. This is stated on the invoice sent to the customer.

Remaining Value Released

The factoring company now release the remaining value of the invoice minus their fees.

Factoring is a dynamic financing service designed to boost your cash flow and remove the hassle of credit control from your business.

What is Factoring?

Invoice Factoring may be the ideal solution if your business is frequently finding itself short of cash, or lacking in the resources to properly control the credit given to your customers. Invoice Factoring is the term used by lenders for the immediate provision of business funding secured against the book debts of the Company, providing the answer to slow-paying customers, shortage of working capital and even protection against bad debt losses. By providing you with cash within 24 hours against your invoice values and handing the responsibility of credit control over to the lender, Invoice Factoring is one of the simplest ways to improve your liquidity position and take steps towards realising your expansion objectives.

Factoring provides the complete solution to:

  • Slow-paying customers – Maintaining a position of strong liquidity can be difficult when your customers require extended credit terms or are poor at meeting their repayments. Invoice Factoring can help by providing you with cash within 24 hours in order to limit the effects of slow paying customers.
  • Shortage of working capital – A lack of available cash could mean missing a lucrative business opportunity, hamper your businesses expansion, or lead to an inability to make required payments. Invoice Factoring will help to plug this financial gap and help you fulfil your expansion and profitability goals.
  • Protection against bad debt losses – Bad debts can cause devastation to any business. For your protection, lenders can provide insurance cover for your debts, meaning a default by one of your customers will not threaten your business.
  • Lack of resources for ‘in-house’ credit control – Sometimes there just aren’t the resources available for effective credit control to be done ‘in-house’. In these instances, Invoice Factoring can be an ideal way to hand the responsibility of chasing payment over to the lenders, allowing you to focus on running your business and doing what you do best. In some cases the savings made by outsourcing credit control can offset the cost of factoring.

Factoring is available in the UK market for businesses with:

  • Reasonable levels of profit – Invoice Factoring will put your business into a stronger liquidity position, providing the opportunity for it to expand and further increase in profitability.
  • An annual turnover of at least £50,000 – Invoice Factoring is usually most appropriate for businesses generating a revenue of at least £50,000 per year. This level of turnover will generally mean the sales ledger is sufficient to provide a workable facility.

How does Factoring work?

Invoice Factoring is a very simple, uncomplicated form of finance; however it is commonly one that is misunderstood. In essence, an Invoice Factoring agreement involves you raising an invoice to your customer and sending a copy of it to your lender. Once your lender receives their copy, they will transfer you up to 90% of the invoice value within 24 hours, providing your business with an instant cash injection. This will allow you to make day to day payments and negotiate lucrative discounts with your suppliers in exchange for prompt repayments. Your lender will then take charge of collecting your customer’s debt and will make the remaining balance minus fees available to you once they receive full repayment.

Invoice Factoring is one of the simplest financial services available and allows your business to take advantage of more opportunities and can assist with expansion. A factoring service relies on the strength, credit-worthiness and spread of your customers, so your lending provider will not need to examine your finances in the same way as banks to in order approve your funding.

What are the benefits of Factoring?

  • Funding increases as your business expands– The more invoices you raise to your customers, the more cash becomes available to you. This means you should always be in a strong liquidity position, no matter how rapidly your business is expanding.
  • Freedom– Your suppliers may allow you a discounted price in exchange for earlier repayment, giving you the opportunity to increase the profit margins on your sales.
  • Boost your credit rating – Invoice Factoring will provide you with cash within 24 hours of raising an invoice, meaning your businesses credit rating can be boosted and preserved by paying its debts promptly.
  • Free up your resources – Handing the administrative responsibility of managing your sales ledger over to your lender frees up your workforce for more important matters.
  • Improve customer relations – Your business may find itself in a position where it can afford to offer extended credit terms to your customers, which will improve your relationship and may give you a sales advantage over competitors.
  • Convenience– Funding is given automatically as you issue your invoices with no need to constantly renegotiate your facility – unlike an overdraft.
  • Security – By taking out ‘none-recourse’ Invoice Factoring you are protected should your customer default on the repayment to your lender. The lender will absorb the debt, rather than your business.

Complete Credit Control

An Invoice Factoring service can provide a complete credit control service. Combining your funding with sales ledger control and administration, without damaging the goodwill you have developed with your customers. Additional services can be added, such as bad debt protection, Stock Finance, Trade Finance facilities, Asset Finance and business loans including the EFG loan scheme.

What’s the difference between Factoring and Invoice Discounting?

Invoice Factoring and Invoice Discounting are similar processes and both facilitate the immediate release of cash against the value of invoices. They differ however, in how the sales ledger is administered. With Invoice Factoring, the responsibility for managing the ledger and collecting repayments lies with the lender, freeing up your workforce and allowing you to focus on running your business. With Invoice Discounting however the responsibility of credit control remains with you.

More information on Invoice Finance can be found on the governments Business finance explained page.

Confidential Factoring

Confidential Invoice Factoring is a facility that is very similar to Invoice Discounting. The only difference is that the funds received from confidential Invoice Factoring require slightly more detail on invoices raised, enabling them to maintain a mirror debtor ledger.

The factor does not become involved with the management of your sales ledger or your day-to-day running of your business or your credit control department. You will be in full control of your sales ledger which will generally mean your use of Factoring services will remain confidential, enabling you to maintain strong relationships with all your debtors.

Similar to Invoice Discounting, confidential Invoice Factoring enables you to release the money tied up in your sales ledger to fund business growth or meet your company financial obligations. WF Financial Solutions can tailor confidential Invoice Factoring services to meet your business requirements.

How does confidential Factoring work?

With confidential Invoice Factoring you raise an invoice to your customer on your own company stationery, send it to your customer and then present your funder with a copy for payment. The funding arrangement with your lender is not mentioned anywhere on the invoice. They will release up to 95% of the value of the invoice straight away. Your own credit control team secures payment from your customer, which is then paid in to your client account with your funder. As soon as the funds have cleared, your funder will send you the balance owed, less their fee.

At WF Finanical Solutions we work closely with a wide range of finance providers so we are well placed to offer you the dest finance deal.
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