What Is Debt Factoring?
Debt factoring is an alternative term to invoice factoring and takes place when accounts receivables, typically in the form of invoices, are raised by a business and passed to a debt factoring company for them to provide a cash advance – up to 100% of the invoices’ value.
The factoring company also takes care of chasing collection of the owed payment on behalf of the client – when the payment is made, the remaining value not initially forwarded is given to the business minus prearranged fees for their service provided.
The more that you explore our invoice finance product pages, the more that you’ll discover that this increasingly popular cash flow solution encompasses a wide range of products – each tailor-made to suit different businesses in different economic situations
Debt or invoice factoring is ideal for businesses that need help to manage their sales ledger. Alternatively, some firms who’ve spent years developing their in-house credit collection systems prefer to retain control of their sales ledger, meaning that they’ll often lean towards an invoice discounting facility or factoring financiers who allow clients to handle their own credit control (CHOCC).
Those companies wishing to access a debt factoring facility will need to consider whether they fulfill the following qualification criteria:
- Debt factoring financiers look for their clients to show that they’ve consistently achieved an annual turnover of £50,000 or more for several years beforehand.
- Most funders will only strike up arrangements with those businesses operating in the UK, rather than firms based abroad with UK branches/commercial activities.
- You’ll also need to ensure that the credit terms offered to your customers when raising invoices span from 30 to 90 days.
Comparing advantages and disadvantages of debt factoring
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