Factoring Invoices

Receivables Factoring is one of the most straight forward and effective aids to solving cash flow management problems yet despite this, amazingly, only 20% of businesses which qualify use it.

Factoring is a form of invoice finance and just one of the many solutions Eland Business Services can offer you to help relieve the pressure on your company’s banking facilities, salaries and tax demands. You could draw-down money owing on factored invoices within 48 hours and if you build in a non-recourse option you may never even have to worry about bad debts either.

What is factoring?

Factoring debt is a business to business service which works in a broadly similar way to invoice discounting in that both revolve around delivering the cash from goods sold on trade accounts or credit straight away.

When you invoice your customer you pass the invoice to the factor who gives you a portion of the cash – usually somewhere between 70 and 90%. The responsibility for collecting payment from the customer then lies with them. Once they receive payment they will give you the balance of the amount, minus administration or service charges.

Factoring is one of the oldest methods of borrowing against receivables although it is not technically borrowing in the true sense of the word. The factor buys the invoice receivable out right. This means you can arrange factoring services where responsibility for collecting the payment from the customer always lies with the factor and if you choose for a non-recourse option this would even apply if your customer defaults on payment. Factoring is not a confidential service and the finance company will be dealing directly with your customers.

Make life easier, reduce your stress with debtor finance.

Factoring costs can be tailored to your business circumstances so if you decide against utilising some, or all, of the factor’s sales ledger management services you can. Why would you though? When you can use all that freed up time to concentrate on the things you do best; running your business, winning new customers and growing your company though increased sales.

Step by step guide to the process of factoring

There are five simple stages to the process of invoice finance, here they are:-

1. You supply your goods or services to a customer and issue an invoice for payment.
2. You send a copy of that invoice to the factoring company.
3. The factoring company gives you a portion of the invoice total straight away, based on the rate you have agreed with them.
4. The customer then makes payment for the invoice direct to the factor.
5. The factor pays you the balance of the invoice minus the agreed service charges.

In short, factoring can bring your business powerful benefits by freeing up your biggest assets; your time and your money.

Here are eight reasons to consider raising finance against your sales ledger:-

1. Factoring allows you to have payment for your invoices straight away. That means you can manage your cash flow more easily.
2. You can have cash without your credit rating being taken into account, although you need to compare service and interest charges with traditional banking facilities to make sure you are getting the best deal.
3. It helps you manage your cash flow and even manage your risk if required. With the cash from your trade debts up front you have the freedom to make payments on regular bills such as tax, salaries or rent and confidence if unexpected bills occur.
4. Factoring lets you to free up time and resources. With your factor taking care of your company’s sales ledger and credit control – in other words, a whole chunk of your monthly admin – you can spend that time productively, running your business or winning new customers.
5. Factoring is competitively priced and can save you costs on overheads. Not only are fact debtor finance solutions a quick, flexible and efficient way to access your cash but they are relatively inexpensive. The price becomes even more attractive if you aren’t spending time managing payment collection, yourself.
6. A good factor will shorten the payment cycle by making sure your customers pay their invoices on time.
7. Debt factoring is a flexible finance option that grows with your business; theres no need to keep negotiating increased borrowing facilities.
8. Factoring can reduce your stress levels. Without cash flow worries, you can concentrate on business.

How to set up a factoring facility

To set up a factoring account for your company it must be trade with other businesses and offer credit terms. Suitability is also determined by the size of turnover – it should be £100,000 or over. If your turnover is over that amount, even if you have applied to other companies for factoring and been refused, the chances are we will still be able to help you.

If your business qualifies for debtor finance, you will then need to provide your factor with six pieces of information, these are:-

1. An up to date Aged Debtor Analysis.
2. The last 3 years’ accounts or management accounts if it is a new company.
3. A sample sales invoice.
4. A sample contract if applicable.
5. A copy of your company’s VAT certificate.
6. A copy of your company’s certificate of incorporation (if applicable).

Here at Eland Business Services, we will make it our business to guide you comprehensively through the whole process, helping you to determine if sales ledger finance would be right for you. We can advise you on the terms you should expect to pay for the arena in which your business operates and save you time and money by sourcing a suitable provider for you.

Free Advice!

If you are not sure whether or not your goods and services can be factored and would like to discuss your options with an expert, we would be happy to offer you free, confidential, no obligation advice – just give us a call.

News

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