What is Invoice Factoring?

How does factoring work?

Factoring is a financial service designed to boost your cash flow and remove the hassle of credit control from your business. Factoring companies will secure their funding against your book debts, eliminating the need for a high level of personal security.

Factoring provides working capital usually within 24 hours of issuing invoices. It can be a great option for B2B companies that need money quickly, but who aren’t able to secure conventional bank finance. A factoring company will advance to a business a percentage of its invoice value.

• Come to an agreement with a factoring company to factor your invoices
• Factoring company will assess quality of your invoices and the clients you are dealing with
• If the quality of your clients and invoices is deemed acceptable, the factoring company will advance you up to 90% of the invoice values
• Factoring company advances funds, collects the relevant invoices from your customers before returning any residual balance to you after deducting their fees and costs

This process, places the time, cost, and effort of invoice collection into the hands of the factoring company, allowing you the time to concentrate on what you do best – run your company. Your business receives the cash it needs, when it needs it, allowing you to best manage your business.

If you apply for a factoring facility, the factoring company will first do their research into the credit history of your customers, prior to purchasing the invoices. They will want to be confident that these companies have a history of paying their bills and will normally be at least as interested in their credit history as your own. They may also provide non-recourse factoring, which means you are protected in the case of your customer becoming insolvent before the invoice is paid.

How is factoring different from a bank loan?

Factoring is a very different form of finance to traditional borrowing. Factoring effectively involves selling your book debt, whereas a traditional bank loan involves the business borrowing on a term loan with fixed repayments or on a fluctuating overdraft basis. Factoring costs are very different to the costs a traditional bank lender would incur, as the rates involved are very different.

Factoring generally does not involve the same detailed application processes and supporting documentation that a bank loan usually requires. Factoring companies place more emphasis on the quality and mix of your invoices than, say, your company having a perfect credit rating to secure a factoring facility.

Banks will look to assess how the business works and its operational procedures. Factoring companies on the other hand won’t usually go through the same rigorous assessments of your own business, as they are more interested in the quality and reliability of your invoices and your clients.

Who is factoring for?

Factoring is only available for B2B businesses which issue invoices. Not all factoring companies lend to all industry sectors, so certain industries, such as construction or international trade, will typically be served by factoring companies which specialise in those areas.

What can we do for you?

If you believe that a factoring facility would be beneficial for your business but are unsure about the best way to secure a good facility or are concerned about the cost of factoring, we can help talk you through the best options available.

We are uniquely positioned in the financial sector to help you secure the best factoring facility. Working closely with the top blue-chip lenders as well as those which can help, we are able to secure the top rates with a package that is the right fit for your business.