Invoice Factoring – What It Is and How It Works - Image

Invoice Factoring – What It Is and How It Works

One of Touch Financial’s most popular cashflow solutions is invoice factoring, but what does this service involve and are there specific benefits when contrasted with other funding facilities? All of the key information that you need on invoice factoring – including the numerous different facilities offered by our lender panel to cater for businesses’ specific needs and ambitions – is here.

What is Invoice Factoring?

Like its other invoice finance counterparts, invoice factoring is a funding facility used by thousands of UK businesses to boost and / or secure their cashflow. The process generally involves businesses sharing copies of their unpaid invoices with a financier, who – depending on the two parties’ agreement – will then forward a predetermined percentage of this invoice’s value to the firm within around 24 hours, while they await customers’ payment(s) over the next 30-120 days.

So, what differentiates invoice factoring from discounting or other invoice finance facilities? Credit collection is a key difference, where invoice discounting involves the business managing this aspect to gather the remaining funds from their customers, factoring – in contrast – will often involve the funder managing credit collection on their client’s behalf. This key distinction means that factoring facilities can specifically alleviate the concerns of those businesses lacking in the confidence to chase owed monies, or alternatively wanting to dedicate more time to recruitment, projects and the like rather than to these administrative tasks.

Invoice Factoring Services

With a wide variety of options, we’ve rounded up the main myriad of invoice factoring services currently on offer below, available to your firm depending on its individual scope, needs and future ambitions:

  • Recourse Factoring – Here a business and its chosen funder will work under the agreement that if its customers fail to pay their invoices and the funder does not receive its owed funds   within 90 days, then it’s up to the business which received the cash advance to pay their funder the outstanding amount.
  • Non-Recourse Factoring – A non-recourse factoring facility will afford the business involved more flexibility in the event of non-payment, since funders will agree a credit limit up to which they’ll cover any bad debt incurred.
  • Export Factoring – Easily the most distinct service on this list, export factoring involves funders forwarding your chosen invoice(s) onto international affiliates capable of managing transactions with customers based abroad and chasing late payments from these clients if necessary.
  • Confidential Factoring – If your business would rather that its customers not be privy to its funding lines, then some funders offer a confidential facility wherein the knowledge of the arrangement is kept solely between your two parties.
  • Client Handles Own Credit Control (CHOCS) – Some businesses don’t actually require pre-payments from funders but could use the help with managing their credit collection systems (or lack thereof); in this case, CHOCC facilities will see the funder provide assistance with credit control but allow firms to continue generating working capital at the usual pace rather than at an accelerated 24 hour rate.
  • Other points to consider – When you get in touch with us about a factoring facility, we’ll usually provide 2-3 options of funders whom we deem most suitable for your business’ requirements. At this point it’s worth also consulting our infographic on selecting your factoring provider, since factors such as differing service fees should always be considered before embarking upon any financial arrangement.

The Benefits

Having discussed the nature of invoice factoring and the different services which Touch Financial and our panel of funders can provide, let’s finish with a step-by-step look at just a few of the ways in which various facilities available can help your business strengthen its working capital and operations…

  • Avoid credit management hassles – Easily one of the biggest advantages that come with pursuing a factoring facility is the funder taking on credit collection responsibilities. This assistance in turn lets you keep the business’ focus on bigger priorities like ongoing projects, recruitment drives or other key operations.
  • Fast access to flexible funding – Unlike other facilities such as overdrafts or property leases which can take weeks to set up as a result of valuations and other paperwork, a factoring facility involves less trawling through terms, conditions and historical data before commencing. Better yet, you can start receiving a high percentage of your invoices within 24 hours of raising them and know that your funding / funder debt will only grow as and when your invoice values do.
  • Generate extra working capital with ease – Factoring often proves particularly beneficial to SMEs as they gain access to the working capital needed to pay staff, bid for new projects, maintain vehicles or other equipment and pay suppliers on time. If you’re amongst the 37% of SMEs who cite late payments as a “chronic problem”, then now’s the time to consider options such as this to help circumvent the issue.
  • Take advantage of burgeoning export demand – With the UK estimated to have exported over £329bn worth of goods abroad in Q4 2017 alone, there’s never been a better time to explore this flourishing market’s vast range of opportunities. Export factoring lends a vital hand to businesses wary of taking that leap into the unknown, with the international affiliates assigned to these facilities helping to ensure smooth transactions as well as chase payment from non-UK customers.

Find Out More

Should you desire additional information on different factoring services and how each can help secure your firm’s finances going forward, we’ve already published several other guides on the subject to date. For example, be sure to consult our factoring infographic for further details on the different facilities available, our rundown of the invoice factoring process and our dedicated factoring product page, each of which will help you gain further insight into this acclaimed funding solution.

Above all, if you have any questions on invoice factoring, or indeed any of our wide range of financial services, then get in touch today and one of our expert consultants will gladly help to answer any of your questions and find the most suitable facility for your business.

Apply now and one of our consultants will help to find you the best invoice finance facility for your business, free of charge.

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