Factoring is a type of business finance specifically designed to increase working capital or liquidity by “selling” the company’s outstanding and future sales invoices to a factoring company as and when they are raised, in return for an immediate payment of a pre-agreed percentage of the invoice value.
The factoring company will also maintain the sales ledger including credit control so there are administrative savings to be made in addition to the increased liquidity.
In practice invoice factoring companies will often advance up to 85% of the invoice value (including vat) as and when the invoices are raised with the balance of 15% being paid over when the customer has paid the account to the factor.
Factoring is suitable for most companies that sell a product or provide a service and is more effective for companies who’s major asset are the trade debts due to them as banks are no longer interested in offering overdraft facilities to this type of company, especially if the company is newly established.
Although supposedly straight forward there are often alarming operational differences between the facilities on offer between one factoring company and the next as whilst most claim to offer an efficient and personal service very often the reverse is true with the lack of flexibility strangling the life out of their client and the levels of funding never reaching the expected levels thanks to a range of excuses used to keep funding as low as possible.
What is Invoice Discounting
Invoice discounting is similar to factoring but in this instance the company continues to maintain it’s own sales ledger and handles it’s own credit control.
In addition invoice discounting tends to be confidential with the customer being aware of the financing arrangement as there is no notice of assignment on invoices
Who are “What is Factoring”
“What is factoring” is a website operated by Factoring Solutions who are widely recognised as industry leaders and the site is designed to offer some guidance about the potential pitfalls including the poor service offered by some factoring companies, how and why factoring companies keep the funding levels as low as possible and why the quoted rates may not be as straight forward as may appear.
For an informal, friendly chat with an expert, please contact Factoring Solutions on the number below. There are no charges for our services and you have our guarantee that we will only introduce you to one of the few invoice finance companies that actually perform as we refuse to deal with the rest.
Interested in how our factoring broking services can benefit your business?