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?   

Feb
05

Invoice Discounting – freeing up funds for businesses

Invoice discounting for businesses offers a way of freeing up funds without resorting to overdraft arrangements or bank loans.  Essentially, a lender advances cash to a company based on an agreed percentage of the value of its outstanding invoices.  As the business collects the invoice payments as normal, it deposits them in a trust account, a bank account created for this purpose.  When all the funds have been secured, the lender pays the balance to the company, less any agreed fee for the service.  Though invoice discounting costs a little, it allows a company to gain access to its income much earlier than would otherwise be the case.

This is of great benefit to cash flow in particular and also provides a way to support business growth plans or the acquisition of new assets.  Invoice discounting has the added benefit of being a confidential arrangement between the lender and the company and just as with a bank loan or an overdraft facility, the company’s customers do not need to know that such an arrangement exists.  Larger companies, in particular, tend to prefer invoice discounting to factoring for this reason.

Feb
01

What Types of Companies Benefit Most From Invoice Finance?

A subset of companies will find the use of invoice financing especially useful; newly formed companies, companies with large clients who are slow to pay and companies doing business overseas. The option of having billing and collections handled by another party, combined with receiving 80 to 90 percent owed on an invoice approximately two months earlier than normal allows businesses to enjoy a predictable cash flow.

New businesses, which find borrowing more difficult than on-going enterprises, benefit from improved cash flow rather than having to constantly negotiate new loans. Additionally, the expertise of the lending institution, with regard to collecting and establishing credit limits, can be invaluable to a business trying to establish itself.

Companies that have a number of clients whose accounts make up a large proportion of their income find not having to wait for invoices to be paid ensures they have enough cash on hand to cover their day to day overheads.

Doing business on the international market is less of a hassle for companies that use invoice finance. The factoring company handles all problems connected with the laws and customs in the client’s country. The hurdles of language and time zones are no longer the provider’s problem, because the factoring company assumes those responsibilities.

With invoice financing, your company is free to concentrate on providing goods and services without worrying about collecting payments, dealing with international trade related problems or slow paying customers.

Jan
29

Invoice Finance: The Successor to Short-term Business Loans

In an example of necessity being the mother of invention, many businesses forced by the tight credit market have found an alternative to short-term business loans. The solution was to use their sales invoices as collateral for a different type of loan, commonly known as invoice finance. While some refer to it as the sale of invoices rather than a loan, the point of invoice finance is to take the task of credit control off the shoulders of the client company and provide it with immediate cash.

Of course, the client company does not receive the full amount of the invoice, because the factor has to be paid, but for many companies the expense is well worth it. They are saved the expense and hassle of employing credit control staff and they receive much needed cash on a predictable timescale, usually within 24 hours of an invoice being delivered.

Knowing when a payment will be received, rather than having to waiting for up to 60 days, brings a sense of relief and opens up opportunities. Expansion, buying in bulk and investing are all possible if the company knows when and how much it will be paid.

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.

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