Factoring Invoices

Small businesses are continuing to struggle to obtain business finance to assist both their everyday working finances and expansion, despite the slowing of the economic downturn and requests from the government to lenders, for further help for SMEs. Commercial business loans are usually based on a company’s creditworthiness, which, for start-ups or small businesses, may prove to be a very real problem.

For those UK-based businesses who deal with b2b, have a turnover of at least £50,000 and who impose credit terms of between 30 and 90 days, Factoring invoices may offer the personal solution.

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How does it work?

The small business owner “sells” their outstanding accounts receivable invoices at a discount to a Factoring agent, who usually takes on both the risk and the responsibility of collecting the debt from the business’ customers, providing the debts are not more than 90 days overdue.

No credit checks, financial accounts or business plans are required to set up the service. It’s easy and fast.

Is Factoring invoices suitable for me?

Ask yourself these questions:

  • Why do you need the money? Is it merely to help you expand and develop or is it necessary for the survival of the company?
  • Have you considered all business financing options or does this just seem the easiest route to take?
  • Are you able to afford the service charges imposed by the Factor?
  • Do you fit the criteria set down by the Factoring agent?

Up to around 90% of your outstanding invoices can be released and delivered within 48 hours, with the remainder being forwarded to you when the invoice has been paid. This final amount is sent to you, minus a service fee (usually a percentage of your annual turnover) and an interest charge, which is normally set slightly above the base rate.

Although it may be that you lose control of your invoicing process, one of the most attractive aspects of Factoring invoices is that the Factor (that is, the financial organisation who has bought your invoices) is responsible for collecting your debts, allowing you to get on with the vital role of developing your business.

You are able to borrow as much or as little as you like, but be aware that some Factors may charge an “underutilisation fee” if a substantial percentage of the amount you loaned is not taken up.

The Factor will assess both the amount of your outstanding accounts receivable invoices, and the creditworthiness of your customers – information which will also prove useful to you.

Are there any downsides to Factoring invoices?

As well as potentially having to hand over your credit control function, you should also ask yourself if your clients will react badly to being forced to pay a Factor, rather than your business directly. Does the risk of upsetting certain clients outweigh the benefits of having a smoother cashflow, having money available as and when you need it; and an outsourced credit control team?

How can Touch Financial help?

  • Over 60 years combined experience assisting businesses with financial challenges means we are experts in our field
  • Not limited to solely Invoice Factoring, we offer a range of financial solutions including Invoice Discounting and business turnaround services
  • Our advice is impartial, and your call will be treated as strictly confidential
  • We have a dedicated team of experts, who can scan the market in seconds and find you the best service offering available, to meet your individual needs

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Every month Touch Financial help businesses improve their cash flow with invoice finance. Request a quote to find out how much extra cash you could raise.

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