Benefits of using factoring solutions
It’s a problem that virtually every business that relies on credit faces. Customers take a period of time to pay invoices – sometimes up to 60 days or more – but bills need to be paid and overheads covered now. Many businesses facing this situation turn to factoring as a solution.
This involves using the services of a factor who agrees to pay the business a proportion of each invoice they issue – this can be as much as 95% - and then takes responsibility for getting payment from the customer. When full payment is received for the invoice the factor pays the outstanding balance to the business, less a small service fee.
The benefits of using factoring solutions is that cash flow is assured, no matter how long creditors take to pay and, as every company knows, cash flow is the life blood of any business allowing it to meet its own commitments and finance growth.
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Better than borrowing
At a time when banks are reluctant to lend to many businesses, factoring offers a very good alternative to borrowing. It is comparatively quick and easy to obtain and does not add the burden of debt to a business – very important in the current economic climate.
Businesses seeking factoring solutions have two options; either they can approach factors directly or go via a broker such as Touch Financial. The latter offers some distinct advantages and, as brokers make money through by commission paid by factors, it carries no extra cost.
By using a broker to get compare quotes a business will get an overview of a wide range of potential factors and could even benefit from exclusive savings and offers which they might otherwise miss.
What’s the cost of using factoring solutions?
Naturally, one of the key considerations when thinking about factoring solutions is the amount it will cost. Obviously it will mean that profit margins are reduced when the factor’s service fee is taken into account. The level of the charges will depend on a number of elements including :
- The sector the business operates in
- The turnover of the business
- The length of time customers generally take to pay.
However, even when all these elements are taken into consideration and the figure is calculated, the costs are generally outweighed by the advantages that improved cash flow brings.
Many businesses are also a little reluctant to introduce a third party into their relationship with a customer, particularly when the main contact the third party will have is in requesting payment. Therefore it’s important to have the confidence that the factor chosen will handle this in a professional way. Again, this is where a broker like Touch Financial can provide reassurance that the use of a chosen partner will not affect customer relationships.
Is it for your business?
Factoring isn’t for every company – for examples retail businesses and, ones which rely on cash sales and those which are paid in instalments are not suitable. On the other hand any business which has a turnover of £50.000 or more and whose biggest single customer does not account for more than 30% of income could well benefit.
Next steps
If you believe that factoring solutions could be for you the next step could be to contact Touch Financial to compare quotes. It’s a simple process and within the day you could be introduced to factors drawn from 20 of the UK’s leading names. Touch Financial is also able to offer impartial and independent advice and make exclusive deals and offers available which you simply would not be offered if you dealt directly with the factor yourself.
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Also in this section:
- Factoring help from Touch Financial
- Benefits of using factoring solutions
- The role of a factoring consultant
- Factoring quote
