The team was extremely knowledegable and helpful.
They helped me navigate the complex world of invoice finance and sourced a range of quotes, giving me peace of mind that I was getting the best deal.
Phil H, Jan 2016
What is Invoice Factoring?
Invoice factoring (also known as debt factoring) allows you to unlock up to 100% of your invoice value within 24 hours against your approved outstanding invoices. This will allow a finance provider to take responsibility for your sales ledger and implement their credit control services. They will collect your outstanding invoices so you don’t have to chase customers’ payments. This means that the business can focus on its core operations whilst ‘outsourcing’ this activity.
The process is:
- The business raises a sales invoice and the finance provider typically buys around 85% of the debt owed by the customer.
- The finance provider then proceeds to collect the full amount of the sales invoice from your customer. When the finance provider receives the funds from the customer, they pay the remaining balance to the business.
- The business then pays the finance provider the pre-arranged fee (and any interest if applicable). These fees will vary depending on which is used.
Here’s an example of how it works: If your customer owes you £20,000, you sell the invoice to a finance provider for £17,000 [85%]. The finance provider collects the £20,000 debt from the customer on your behalf and pays you the remaining £3,000. You then pay any fees and interest that you have agreed. This means that you get access to your invoice value immediately and then the remainder once the customer has paid.
Benefits of Invoice Factoring
Invoice factoring helps you boost cash flow and maintain control of your sales ledger. This can be very valuable for any businesses suffering from a shortage of working capital. For example, a business that is owed £100,000 may be able to get access to £85,000 or more in just a couple of days. This enables you to be proactive and protect against late or non payment of sales invoices.
Here’s a list of benefits:
- You can free up your time to manage your business by putting a third party in charge of your sales ledger
- You can help your business grow by using factoring to get access to cash quickly and easily. Cash is released as soon as orders are invoiced and is available immediately
- Invoice factoring allows you to plan better and rest assured knowing that cash flow is sorted
- The factoring market is very mature and competitive in the UK and allows you to access strong deals with finance providers
- Customers may respect finance providers/ third parties more and pay quicker
- You will be protected against bad debts if you choose non-recourse factoring
- Factoring finance providers will credit check your clients and help you trade with better quality clients
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