Quick Guide To Factoring

Bridging the gap between raising invoices and receiving payment is a juggling act many business owners struggle with. Unfortunately the problem seems to be getting worse with the invoices typically being paid after 71 days, up from an average of 57 days in 2003.

Luckily there is an alternative solution to waiting 71 days for your invoices to be paid – Invoice Finance. Over 40,000 businesses in the UK now use Factoring to give them access to their cash as soon as they raise their invoices, allowing them to put the cash back to work immediately.

A Factoring lender will release up to 95% of the cash tied up in unpaid invoices, typically within 24 hours of the invoice being raised. As part of the service a lender could also manage your sales ledger, credit control and payment collection process. Naturally there is a small fee for this service, but some businesses actually save money as they remove the necessity to buy expensive management systems, hire additional staff and ultimately frees their time up to focus on the important stuff, like running their business.

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Are you eligible to use Factoring?

Naturally, Factoring and Invoice Discounting isn’t suitable for all businesses, however unlike most forms of commercial finance it is suitable for both start-ups and well established organisations.

There are three simple questions you need to ask in order to determine whether you could use Factoring:

  1. Is your projected turnover in the next 12 months over £50,000?
  2. Do you raise invoices to other businesses?
  3. Do you offer credit terms of between 30 – 60 days?

If you can answer ‘yes’ to the three questions above then your business could be suitable to use a Factoring service.

Asset Based and Account Receivable Factoring

Although 40,000 companies in the UK use Invoice Finance, it is still a relatively ‘low profile’ product, with some business owners unaware it exists. Due to the products low profile it is often referred to by a wealth of different names which typically refer to the same product.

For example Asset Based Factoring and Accounts Receivable Factoring are exactly the same product, both offering a cash flow solution as well as sales ledger management.

However, Factoring and Invoice Discounting differ slightly, with a lender managing the customers sales ledger, credit control and payment collection under a Factoring facility.

Invoice Finance Lenders

Like most finance products the market is somewhat flooded with big banks, independent and niche lenders. With all the lenders in the market it can be overwhelming when comparing quotes, service levels and ultimately which lender to sign a twelve month contract with.

In our experience each lender has a ‘sweet spot’ catering for a particular industry, turnover band, geographic location etc. Which is great if you know what they are, unfortunately most lenders don’t communicate this to customers.

When searching for a Factoring service it’s advisable to speak with an independent broker like Touch Financial. Being independent means we’re not tied to any one provider and can advise customers on which lender is the best fit for their business.

The information and guidance offered by Touch is also completely free, because we receive commission from lenders for successfully introducing clients to them. Touch also work with over 20 of the UK’s leading lenders, giving us access to favourable rates and special offers.

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In addition to our quick quote functionality there are a number of informative guides and articles on the Touch Financial website. Here are a few you may find useful:

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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