Invoice Factoring Companies
Working With Invoice Factoring Companies
Business can reduce their admin and credit problems by working
with an invoice factoring company to improve cash flow. With
invoice factoring a business sells its debts (customer invoices) to
the invoice factoring company. Money is then advanced to your
business immediately after the debts are sold (within 48 hours) and
additionally the factoring company will take responsibility for
managing your sales ledger and following-up to collect overdue
Two types of invoice factoring available to
companies in the UK:
With recourse factoring your business is responsible for any
customers that default on payment. If a customer fails to pay
their invoice after a certain number of agreed days then the
factoring company is entitled to a repayment on monies previously
If you have a non-recourse agreement, then the customer debt is
the responsibility of the factoring company and they take full
responsibility for credit collection and any costs associated with
it, such as legal action etc.
Another product within the invoice finance portfolio and offered
by some factoring companies is something called invoice
discounting is similar to factoring in so far as it provides
cash based on invoices submitted however with invoice discounting
your business keeps responsibility for the invoicing process and
credit collection etc.
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Invoice Factoring Companies - Where Do You
Within the United Kingdom, the vast majority of invoice
factoring companies are members of ABFA (Asset Based Finance Association). While
many of the factoring companies are divisions of well-known banks
there are also many independent companies that specialise in
factoring or invoice finance. When you're considering
factoring you might want to talk to your bank to see what they have
to offer but you don't have to use your bank.
Within the factoring industry some factoring companies are
industry specialists - they won't want customers outside this
specialism. Other factoring companies such as the banks are
generally happy to offer factoring to a wide range of business
When you're considering factoring companies
there are some key questions to ask:
- How much does the factoring service cost?
What are the charge
- If you're not happy or wish to leave -
what's the notice period?
- What are the terms and conditions for
taking a factoring agreement? (Make sure you read these
and/or get legal advice)
Invoice Factoring Companies - What are
Generally there are two main charges, used
by invoice factoring companies:
- Discount Charges
- Credit Management Charges
Discount charges vary but are usually between one and three per
cent above base rate. Similar to an interest charge on other
sources of finance such as a loan or overdraft, discount charges
tend to be calculated daily and then invoiced monthly.
Credit management charges are, the agreed fees, charged for
credit and sales ledger management and usually is less than three
per cent of your turnover.
If you have a non-recourse factoring arrangement then the
charges will be based on the risks. Also in a non-recourse
agreement there will be a charge for credit protection.
Invoice Factoring - Getting Started With A
Once you've decided that invoice factoring provides an
satisfactory solution for your business requirements you should the
apply to some invoice factoring companies. A small number is
usually appropriate as you will need one who you can work with in
partnership. After you apply the company will send out a
factoring expert to meet with you and to establish whether your
business is suitable for invoice finance. The factoring company
should spend time to understand what your business does, what
products and services you offer as well as the invoicing
processes. They will need all the details of poor paying
customers, bad debt etc. The whole process of agreeing,
negotiating and engaging a factoring company can take a couple of
months so be aware.
You could start getting quotes from factoring companies now.
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