Feb
19

Companies Use Invoice Factoring to Cover Slow Periods

Most business owners understand that there are times when outgoings far outweigh incoming cash. Customers may be slow to pay in a particular month or an unexpected expense may arise. Factoring can help utilise future assets to cover these slow times.

How it Works

Factoring brokers, provide money to a company in return for their outstanding invoices. The company agrees to pay the factoring company a percentage of the invoice’s face value. The factoring company then does the work of collecting the full payment on behalf of the company. The difference between the invoice’s face value and what the factoring company pays to the company is the factoring company’s fee.

Benefits

This type of financing provides companies with almost instant access to funds. Within 24 hours of submitting an invoice to a customer, the supplier can have money available. Because there is future income pending, factors are less worried about the financial status of the company.

Feb
16

Try Invoice Factoring for Your Business

In these times of financial uncertainty, many companies aim to juggle their cash flow carefully in order to minimise any negative impacts of a downturn in business.  This often involves paying their suppliers at the last possible moment, whilst pressuring customers to settle their accounts as quickly as possible.  All this can be somewhat tricky to handle whilst also trying to manage a company and competing to win new business.

One method of improving cash flow, without resorting to bank loans or similar, is to try invoice factoring.  Also known as debt factoring, it works by allowing businesses to sell their invoices to a third party.  The third party will do all the hard work of chasing up payments and releases funds to the business against the value of the invoice; businesses do not therefore have to wait for the invoice to be paid by the customer in order to receive the funds.  There is an added bonus, because companies that try invoice factoring frequently find that their administrative overheads can be reduced as a result.  Search for firms that describe themselves as debt factoring companies or factors.

Feb
12

Factoring Companies: How to Choose One

There are a large number of companies that provide services such as factoring and invoice discounting and businesses considering invoice finance may wish to discuss their individual situations with financial institutions or independent providers before making a final decision.  One useful source of initial information is the Asset Based Finance Association (ABFA), which can supply a list of factoring companies together with details of their services and their turnover requirements for clients.

There are also brokers who can negotiate on behalf of businesses and this can be a useful starting point, as they will not normally charge for advice.  Instead, they receive a commission from the lenders they recommend; those with strong partnerships with reputable banks and financial institutions will be the most reliable.

Factoring companies should be happy to allow a potential client to obtain references from some of their customers and businesses should take the opportunity to ask pertinent questions.  It is important to establish if debts are collected quickly and efficiently; how agreed procedures work in practice and what happens if there are queries or disputes?

As the lender and the business are going to be working in tandem, a good working relationship is essential; this is where a good broker can be of help.  If the lender has experience of the industry in which the business is operating, so much the better, as ease of communication will make working together more successful.
      
Finally, establishing how any agreement is to be ended is useful at the outset; how much notice needs to be given and is this a viable prospect for the business?   

Jan
26

Invoice Factoring: Not Just for the Big Fish

Invoice factoring, contracting to accept less than full face value for invoices in return for immediate payment, is mistakenly thought to be an option open only to large companies. True, some businesses are too small for consideration by factoring companies, but many that were formally deemed to small are now considered perfect candidates. Usually, companies that sell to other businesses are prime candidates and many service industries and e-commerce companies find invoice factoring particularly beneficial.

Companies with primary assets that are the monies owed them have particular difficulty obtaining loans, however, with invoice finance the invoices serve as collateral. The lender, or factor, takes charge of the invoices and assumes responsibility for any actions necessary to secure payment. The client company’s customers pay the lender and any receipts, above the factor’s agreed fee and the upfront payment, are sent to the company.

Regarding the factoring contract, there is a limited time period for collection. If an invoice is not paid within the prescribed time, generally 90 days past due date or 120 days from invoice date, the invoice reverts to the client company.  However, assuming a non-recourse fee has been paid the company will not have to make repayment.

Jan
22

International Invoice Factoring

Typically, options for invoice finance, such as factoring and invoice discounting, are often considered by businesses trading within the United Kingdom; however, there are some factoring companies that also offer the opportunity for ‘export factoring’, the financing of goods or services that are sold overseas.  In terms of the process and credit limits, local and international factoring are generally the same, although factors may offer a lower percentage rate on invoices for international sales than they do for domestic sales.

Basic Requirements

Normally, companies must have a minimum turnover of £100,000 and this can include the value of UK sales.  Within the European Union (EU), businesses are able to factor amounts owed from other parts of the EU, even if these are relatively small.  Outside the EU, businesses will need more substantial sales per country and for the USA; for example, annual sales of at least £500,000 are often required.

How it Works

In the UK, a lender or factor will normally be directly involved in arranging invoice finance with a business.  Export factoring, however, usually requires a further partnership and the lender works with a local agent who will take on the responsibility for collecting payments in the country to which the business is exporting.  This mechanism serves to help prevent any difficulties that might arise as a result of, for example, time or language differences or variations in laws and customs.  It is often possible for businesses to invoice in one specific currency and choose to be paid in another.

Jan
18

Touch Financial Factoring Broker

Touch Financial Factoring is the biggest independent factoring broker in the United Kingdom and the company has access to more than 20 lending institutions.

What are the benefits of using the services of a company such as Touch Financial Factoring over approaching a bank, for example or directly approaching an invoice factoring company?

In fact, the benefits are numerous. In the first place Touch has excellent business relations with a large number of credit providers and can arrange for you to deal with one that is ideal for your specific industry or requirement. The company can, in most cases, also arrange more favourable terms than you would be able to agree on your own.

You must operate a UK business and your customers need to be other companies, not private individuals. Your yearly turnover should be at least £50,000 and your customers should pay in not less than 30 days and not more than 90 days.

It is possible to obtain a quote without committing yourself in any way, so you can easily compare a range of offers.

Jan
14

Which Invoice Finance Solution Is Best For You

When you choose to use invoice financing to increase immediate cash flow in your company, you have two options to choose from.  It is important to choose the right invoice finance solution for your business’s needs, as the two are different.  Your options include invoice factoring and invoice discounting.  While similar, they are each available to different types of businesses.     

Invoice Discounting

The invoice finance solution, invoice discounting, is available to businesses with an annual turnover of at least £500,000.  Some discounters require almost twice that much.  Invoice discounting allows you to maintain control over your sales ledger and can be kept confidential, meaning your customers never know.  This is best for companies with their own in house credit management team. 

Discounting allows you to borrow a set percentage against outstanding invoices.  You pay down the borrowed amount when the customer pays you.  In the interim, you pay interest as with business loans.  Once paid, you receive the full amount of the invoice minus the discounter’s service fee.

Invoice Factoring

Invoice factoring only requires an annual turnover of £50,000.  This makes it a more popular solution as it fits with most sizes of business.  Some factors will actually accept businesses with less turnover if they meet other requirements.  Factoring does provide the option to have debt collection handled by the factor instead of you.  If the factor collects debt, customers must be made aware of this, since the factor contacts them.  You only pay a set percentage of the invoice as the factor’s fee.

Jan
03

Improve Cash Flow With Invoice Factoring

The quickest way to improve cash flow within your company is to use invoice factoring.  Instead of waiting for customers to pay you, you actually borrow against the invoices and can immediately invest back into your business.  This is especially important for small to medium businesses who cannot afford to wait over a month for customers to pay.

Profit More

When you are waiting for invoices to be paid, you may be missing opportunities to profit more.  An investment in your business today could yield large profits in just a few weeks.  However, without the funds from unpaid invoices, you may be unable to take advantage of these profitable situations.  While you do lose a small percentage of invoices when you use invoice factoring, you can actually profit from it when you reinvest.

Save on Credit Management

In addition to quick turnaround of invoices, companies often choose to try invoice factoring simply to save on credit management costs.  Many companies do not have a dedicated debt collection department to handle invoices.  Hiring employees is costly.  Instead of hiring someone new or creating a new department, use factoring services. 

Instead of the customer paying you, the factoring company handles all debt collection for you.  They manage the invoices, ensure they are paid and even check the credit history of customers to see if they are likely to pay on time.  For a small percentage of each invoice, you receive as much as 85 per cent of an invoice within 24 hours and the invoice factoring company becomes your own personal credit management department.

Dec
25

Business Finance Options for a Growing Company

If you have ever been involved in a business start-up, you know how difficult it could be to get business finance for those first few years during which you are struggling to establish yourself in the market place. You have to spend huge amounts of money on marketing, you have to buy new tools and machinery and you have to provide favourable payment terms to your debtors to prevent them from choosing one of your competitors.

If yours is the type of business with lots of fixed assets; buildings, land etc. you might find it relatively easy to get access to bank finance. You will, however, find the application and approval process cumbersome and the repayment terms inflexible.

Raising business finance through invoice factoring is, in many cases, a better solution. You do not have to provide the factor with financial statements or even credit references. All they are interested in is that you have outstanding invoices to cover the amount you want to borrow. Normally they will then give you a cash advance of up to 85% of that amount. Once your debtors have paid, they deduct their fees and pay out the balance.

This has several benefits. The more you sell, the more cash you will have access to, which is great if your business is growing. On the other hand, if there should be a downturn in the market, you are not bound to a fixed monthly repayment, if you receive less money from your debtors your responsibility towards the factor will decrease accordingly.

If you opt for non-recourse invoice factoring, the factor will even bear the risk of unpaid debts. This will have a cost implication though, based on a percentage of your outstanding debtors. With recourse financing your business has to bear that risk.

Dec
20

Benefits Of Invoice Factoring

If you need money from unpaid invoices in just a few days, the solution is as simple as invoice factoring. Unlike invoice discounting, eligibility requirements are less stringent. This makes it a good option for both smaller and large businesses. The entire premise of factoring is to help increase cash flow while allowing a third party to handle your sales ledgers.

Earn Customer Respect

Since you are working with a professional third party credit management service, many customers actually respect your business more. They understand the necessity to have immediate access to unpaid invoices to keep your business growing without delays. Often, customers actually pay more quickly when you use invoice factoring.

Learn About Your Customers

Factors help you learn about the credit standing of the customers you deal with. This helps you to know whether customers are likely to pay early, on time or at all. Obviously, this helps you to avoid bad customers. Factors also help you to negotiate with suppliers for better terms.

Credit Management

With invoice factoring, there is no need to have your own in-house credit management department. Factors handle all invoices and debt collecting. You are also protected from bad debts should you choose non-recourse factoring. This isn’t something you would have on your own.

Invest Now

Businesses often miss profitable opportunities due to lack of immediate cash. By paying only a small percentage of the invoiced amounts, you are able to invest back into your business the moment an opportunity arises.

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