Commercial Factoring Overview and Benefits
Commercial factoring has become one of the most popular means for businesses to raise additional finance, without the need for taking on extra debt in the forms of business overdrafts and loans.
How does commercial factoring work?
A business will invoice a customer on completion of part or whole of a job, often issuing set credit terms. Whether or not the customer pays within the credit terms is a question of luck and very often, businesses are left with an unpaid invoice, but bills coming in at the other end, needing to be paid in order to keep operating. A commercial factoring agent will, for a service charge, agree to release up to 90% of a customer invoice, immediately once it has been issued (often within 24 hours). Some agents will also agree to chase unpaid invoices, with the intervention of a third party debt collector often being threat enough for many customers to settle their debts immediately.
Once a customer invoice has been paid in full, the agent will then release the remaining balance on the invoice, minus its service charge, making the whole process pain free and allowing your business to continue trading as normal.
Remember that whereas if your relationship with a bank or other financial lender sours, perhaps if you miss one or two payments or go over your credit limit on a regular basis, the lender is within their right to recall your borrowing facility at extremely short notice, sometimes even within a few weeks. This can cause immense strain for business owners, who are forced to find a large sum of money in addition to still having to pay interest fees and penalties. It is a situation in which many find themselves with seemingly no solution but to visit a loan shark to raise the additional funds needed.
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What are the criteria for being accepted as an applicant?
One of the beauties of commercial factoring is that, unlike other financial lenders, there are no stringent credit checks or requests for sight of business accounts. Agents will simply look at the amount of customer invoices outstanding and then run credit checks on those customers. As long as you have a turnover of at least £50,000, are based in the UK and issue credit terms of between 30-90 days, you have the profile of a suitable candidate.
In addition, commercial factoring is a flexible financial solution and as your business grows, so does the funding available to you, making it the ideal option for both young and more established companies alike.
Can it be applied to both customers here and abroad?
It certainly can. Export factoring is also available, although different charges and criteria apply for customer countries outside of the UK.
How can I find out more about commercial factoring?
Touch Financial, with over 25 years of combined experience, is the UK’s leading independent commercial finance broker, helping thousands of businesses each year dig their way out of financial difficulty and fuel the growth of their business. Telephone us on 0845 388 9725 and one of our expert advisors will discuss your particular business needs with you and arrive at the most appropriate solution, quickly.
Our advice service is completely free and confidential. We work with over 20 of the best commercial finance agents including Lloyds TSB Commercial Finance, Royal Bank of Scotland and Bibby Financial Services to bring you competitively priced solutions, so give us a call today. Whatever your financial challenge, don’t rely on the unstable nature of expensive bank loans and overdrafts - we can help.
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Also in this section:
- Business debt factoring overview and how it works
- Is export factoring right for your business?
- Could your business benefit from domestic factoring?
- What is commercial factoring and how could your business benefit?
