How Can You Benefit From Business Factoring?
Despite reports of a slight stabilising of the economy, thousands of UK businesses are still feeling the strain of the downturn in the economic climate and will continue to do so for some time to come. Indeed, a recent report by PriceWaterhouse Coopers indicated that over 5,483 UK businesses folded in the first quarter of this year.
One of the principal difficulties faced by business owners is the restriction of cashflow, due to customers either unable to pay invoices, or delaying payments. Many are choosing a process known as “business factoring”, whereby for an agreed fee, a factoring company will release a high percentage of accounts’ receivable invoices issued within 48 hours, allowing the firm to pay its own bills and necessary outgoings as they fall due and making more funds available as the firm grows ane expands.
Business factoring for many, is preferable to a bank loan. This is because with a loan, the credit worthiness of the borrower is assessed, whereas with factoring, it is the credit worthiness of the applicant’s customers which is analysed. As long as the applicant’s firm is UK-based, sells business to business, has an annual turnover of at least £50,000 and credit terms of between 30 and 90 days, they are likely to be accepted.
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How does business factoring work?
Business factoring can be a minefield. Many factoring companies will offer similar-sounding service packages, although there are distinct differences between service levels and choosing an underperforming company based on price can have devastating effects. For this reason, and to reduce time and resources spent on research, some businesses prefer to use a factoring agent, who will scan the market in minutes and identify the best solution for your business.
After the client business’ customers have been credit checked to assess risk, they will be notified that they should send payment to the factor. For many customers, this will in itself prompt them to pay on time. For those choosing non-recourse factoring, although this may cost extra, it will absolve them of all responsibility in collecting the payment; the factor taking on all responsibility.
How much money will I be able to release?
Quotes are normally based on a release of between 85% - 90% of your total accounts’ receivable invoice amount, usually paid within 48 hours.
How much does it cost?
There are normally two fees involved in business factoring. When you have received the advance from your customer invoice, and the customer goes on to pay that invoice, you will then be issued with the remaining amount, minus the factoring company’s service fee, which is often based on a small percentage of your turnover or a small percentage of the value of the invoice. In addition, you will be charged a specific percentage of interest, normally fixed slightly above the base rate.
Some business owners make the mistake of automatically choosing the cheapest option. Be wary of falling into this trap; it may be that your “cheap deal” will in fact not offer the level of service that you require.
Touch Financial - the UK's leading factoring broker
With our combined experience of more than 60 years in commercial finance, we recognise that each business customer is an individual. Respected within our industry, we will find the best fit solution to meet your needs, aims and budget.
Simply ring us on 0845 388 9725 and speak to one of our team of experts, who will take the details over the phone and return to you within minutes, with the best quote available. We’ve helped thousands of businesses to release cash and stay afloat. We may be able to help you too.
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Also in this section:
- Factoring service, the right finance solution for your business?
- How to find the best small business factoring quote
- How can you benefit from business factoring?
- Factoring future cash payments
- Read more about factoring invoices
- Read more about the benefits of business factoring
