FAQs
- What is factoring?
- How does factoring work?
- Why use factoring?
- Are all factoring companies the same?
- Are all factoring facilities the same?
- What are the different types of invoice finance facilities?
- Can I factor in my sector?
- What are service charges?
- Is factoring is expensive?
- Will factoring upset my customers?
- Will I be tied into a long–term factoring contract?
- My bank has offered me a factoring arrangement, should I consider it?
- Who are the Factoring Advisory Service?
- Who are Corporate Strategies?
- What does the Factoring Advisory Service offer?
- Do I have to pay to use the Factoring Advisory Service?
- Why is the Factoring Advisory Service so different?
- Is the Factoring Advisory Service a broker?
- Why not go direct to the factor?
- Can you help with any other business services?
What is factoring?
Factoring is a flexible form of business finance where a factoring company agrees to immediately advance your business a certain percentage (usually 70–90%) of each sales invoice you raise.
The factoring company can then take on the responsibility for collecting the invoice amount from your customer when it falls due. Once this has been done, the factoring company makes available the balance of the invoice amount less fees.
Factoring is very widely used by businesses both large and small and has advantages over other forms of borrowing such as overdrafts or business loans:
1. Factoring is very flexible and allows you to increase your borrowing in line with your business growth. This is especially important, as for most businesses, supplies must be paid for before they receive payment from customers.
2. Unlike a bank loan, no other assets are required to secure funding.
3. Factoring arrangements can usually be set-up much more quickly than other forms of finance.
How does factoring work?
Factoring can easily be integrated to any business and works as follows:
• You deliver goods or services and raise an invoice for them
• You sell the invoice to a factoring company. They immediately give you the first installment of 70% to 90% of your invoice value.
• You get the immediate funds you need to run your business
• Once the customer pays the factoring company you get the second installment (of 10% to 30%) and are charged a small fee for the transaction.
Why use factoring?
For legal reasons most Banks are encouraging their customers to move to factoring which improves the Bank's security arrangements. This is not bad news for you as there are many cashflow benefits. This change in funding practice now means more working capital is funded by factoring than by traditional overdraft.
Trade debtors may be the largest asset on your balance sheet, but they may turn into cash at a much slower rate than you would like.
Are all factoring companies the same?
No, all factoring companies are not the same. In fact they differ widely in their expertise, product range, costs and structure and it is therefore absolutely vital that you are matched with a factoring company that will suit your business – there are even factoring companies that specialise in certain industries only.Are all factoring facilities the same?
If you are already in a factoring arrangement and are looking to maximise the service you get, you may not be aware that there are now many different forms of factoring available. We've given some brief descriptions below, but please call us free on 0800 970 0038 for more information and advice.What are the different types of invoice finance facilities?
Full service factoring
Factoring can provide the complete answer to slow-paying customers, shortage of working capital and, if needed, protection against bad debts. A factor agrees to pay a percentage of your approved sales invoices as soon as they are raised and notified. Services such as sales ledger management and credit control may be included within this full service and can be available on both export and UK sales.
Sales ledger management
Factors can offer a comprehensive sales ledger management and credit control service - so you get paid faster by your customers, without damaging the goodwill you have developed. You needn't wait until your customers pay, because the factor may pay up to 90% of outstanding invoices right away – and the balance when your customers pay. By undertaking your credit management and collections work, a factor can offer major savings on your administration costs, while faster customer payments often mean reduced borrowing, resulting in lower interest costs.
Invoice Discounting
Even if your business practices sound credit management, you may still need to turn debtors into cash faster, thus generating maximum working capital from your trade debtors. This is where invoice discounting can help. Invoice discounting can be either confidential or disclosed, making cash immediately available up to 90% of the value of your approved invoices, while you retain responsibility for the sales ledger management and credit control. Payments that you receive are paid into a bank account administered by the Invoice Discounter, after which you are credited with the balance, less charges.
Specialist Factoring Situations
Factoring is used extensively in industry sectors such as temporary recruitment, transport, manufacturing, printing and the service sector.
Short–term Factoring
As the name suggests, Short-term Factoring allows you to Factor your invoices for a short period of time – usually six months. This solution is ideal if you need to release monies quickly for short-term capital expenditure etc. Not all Factoring companies offer this option and in our experience, the rates charged vary widely. Please call us on 0161 831 0247 if you are interested in this facility.
"Pay–as–you–go" Factoring
Pay–as–you–go Factoring is a relatively new form of Factoring but one that we think will grow dramatically over the next few years. This is the ultimate form of short term Factoring as you are not tied into a contract. However (just like with a mobile phone), you do pay a slightly higher individual charge. If you want to learn more about this type of Factoring, just give our Factoring Advice Team a call on 0161 831 0247 – they'll be happy to help.
Selective Factoring
With Selective Factoring, you can now opt to Factor just some of your invoices. This could be ideal if you need the security of knowing that you have a base level of cashflow available each month. For more information, call one of our Factoring Advice Team on 0161 831 0247.
Fixed Price Factoring
Most standard Factoring contracts base their charges on a percentage of your turnover but some innovative new Factoring companies are now willing to negotiate a fixed price – regardless of turnover. If this sounds of interest, give us a call on 0161 831 0247 and we'll explain all the options and point you in the right direction.
Can I factor in my sector?
At Factoring Strategies, we can also recommend which companies may provide funding in non–typical factoring situations such as:
• Exporting
• Contracting and construction
• Formal insolvency situations such as in administration and company voluntary arrangements
What are service charges?
The charges for a full factoring service are quoted formally, once a factor gains a full understanding of your business, but they are usually between 0.75% and 2.5% of turnover. Whereas charges are lower for invoice discounting facilities which reflects the customer regaining responsibility for sales ledger management and credit control. Interest rates applied to all advances are typically in line with secured overdraft rates.Is factoring is expensive?
Not anymore it isn't! Up until a few years ago Factoring was considered an expensive form of funding but the entry of many new Factoring companies into the market has led to massive downward pressure on costs. With good advice from The Factoring Advisory Service and dependant on your situation, Factoring can cost as little as 1% of invoice value!Will factoring upset my customers?
No! Many companies worry that the Factoring Company will be too heavy handed with their customers and will upset them. This is highly unlikely if you choose the right Factoring Company. In fact some Factoring companies will actually allow you to collect your own invoices should you wish.Will I be tied into a long–term factoring contract?
No! Many Factoring companies now offer short term factoring (typically six months) and "Pay–as–you–go" factoring is also now possible.
My bank has offered me a factoring arrangement, should I consider it?
You should certainly consider it, but then give us a call so that we can check whether our database can unearth a more competitive quotations - in many cases we can.Who are the Factoring Advisory Service?
The Factoring Advisory Service is part of the fast growing Leonard Curtis Group of business advisory companies.
As experts in cashflow finance, we have a wide experience of presenting creative solutions in financial services.
Our specialist advisors work with all kinds of companies - big and small, young and well established - and in just about any sector.
In fact, you could say we’ve seen it all. So you can trust us to understand your business.
Who are Corporate Strategies?
Corporate Strategies is part of the national Leonard Curtis Group, one of the fastest-growing Corporate Recovery practices in the UK top 10.
We specialise in helping both struggling companies and fast growing businesses to restructure their finances. So far we've helped hundreds of businesses to get extra funding for expansion, improve financial reporting and implement new business strategies.
National coverage guarantees that we can help all types and sizes of business, in any location. So whatever position you're in, we'll work closely with you to provide objective and innovative solutions, which ultimately can help to realise the potential of your business.
What does the Factoring Advisory Service offer?
Absolutely the right solution for your business -
• An independent assessment of your needs
• A comprehensive range of solutions for businesses with a cashflow requirement regardless of industry sector
• Transparent advice on onerous termination clauses and other hidden charges
• Close relationships with factoring companies, which refer clients to us
Do I have to pay to use the Factoring Advisory Service?
NO! We offer -
• A completely free, no fee based service, tailored to suit your requirements
• Personal advice and recommendations - as much or as little as you need
• Business finance health check to assess your situation
• Preparation for factoring to present your business in the right way
• Assistance to attract the most cost-effective package
• In-depth knowledge of factoring companies - the sectors, the pricing structures, the people
Why is the Factoring Advisory Service so different?
Quite simply, we are:
• Independent & impartial… we give you the real picture
• No fee based... you pay nothing to us
• We will chat you through it all… saving you time and effort and avoiding potential onerous commitments
Is the Factoring Advisory Service a broker?
Yes and No! Brokers usually take a commission for placing your business with a factoring company. The Factoring Advisory Service does not take or seek any commission for our services. Our Factoring advice is free. We act as a "clearing house" for the UK Factoring industry, matching up the supply and demand for Factoring services as we do so. Our role is to help by ensuring that growing businesses have open access to the most competitive financial support available.Why not go direct to the factor?
It’s OK spending time filling in online forms. But in reality, this is just a way to persuade you into speaking with a sales rep. The figures you are quoted may bear no resemblance to the final costs.
Also, remember that a factor can only sell their own product. The solution might not be the right one for you - and they may try to ‘pigeon hole’ your business. Plus a factor can only really give you a quote based on your existing business information.
Instead, we look at your specific needs, we find the right factor, then we present your business positively to get you the most favourable rate. It’s a bit like preparing a house to go on the market. You make it look good, you get the best price!
Can you help with any other business services?
Because factors understand the working capital needs of the small and medium-sized business, many of our factors also offer a range of other services, such as trade/stock/asset finance and bad debt protection to safeguard your profits and cash flow. As part of the DTE Group, we can also advise you on a range of value added services, such as payroll and HR outsourcing.
What’s really in it for you – why use the Factoring Advisory Service? When it comes down to money, we all want the best deal. And by ironing out any problems before presenting your business to a factor, we help you get the best rates or indeed decide whether factoring is appropriate for your business. We can certainly groom your business for a facility, but if factoring isn’t for you, we have the expertise to give you other options too.