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?
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 usually required to secure funding.
3. Factoring arrangements can usually be set-up much more quickly than other forms of finance.
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.
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.
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.
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 993 0193 for more information and advice.
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 factoring company 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
Factoring companies 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 factoring company can offer major savings on your administration costs, while faster customer payments often mean reduced borrowing, resulting in lower interest costs.
Even if your business practises 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, construction and the service sector.
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 0800 993 0193 if you are interested in this facility.
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 Advisory Team a call on 0800 993 0193 – they'll be happy to help.
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 Advisory Team on 0800 993 0193.
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 0800 993 0193 and we'll explain all the options and point you in the right direction.
The Factoring Advisory Service can also recommend which companies may provide funding in non–typical factoring situations such as:
• Contracting and construction
• Formal insolvency situations such as in administration and company voluntary arrangements
The charges for a full factoring service are quoted formally, once a factoring company 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 retaining responsibility for sales ledger management and credit control. Interest rates applied to all advances are typically in line with secured overdraft rates.
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!
No! Many companies worry that a 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.
No! Many factoring companies now offer short term factoring (typically six months) and "Pay–as–you–go" factoring is also now possible.
You should certainly consider it, but then give us a call so that we can check whether our database can unearth more competitive quotations - in many cases we can.
The Factoring Advisory Service is part of the fast growing Leonard Business Solutions 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.
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
No! We offer -
• 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
No, but from time to time our relationship with the asset-cased lenders means we are paid a commission for the introduction of a new client. Set out below is a general guide on how commissions are calculated and when they are paid.
Basis of calculation - generally calculated as a % (usually 15-20%) of the minimum income or service charge, whichever is the higher. Payment of commission does not affect the amount you pay under the terms of the agreement.
Payment of calculation - Commission payments are made direct to us either monthly or quarterly in arrears at the discretion of the funder.
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 representative. The figures you are quoted may bear no resemblance to the final costs.
Also, remember that a factoring company 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!
Because factoring companies understand the working capital needs of the small and medium-sized business, many of our factoring partners also offer a range of other services, such as trade/stock/asset finance and bad debt protection to safeguard your profits and cash flow. We can also advise you on a range of value added services, such as payroll and HR outsourcing via our professional network.
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.