Factoring to Help Cash Flow

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The delay in payment of invoices can lead to severe cashflow for some companies. Have you ever thought about factoring as a possible solution?

Use Factoring as a Small Business?

If you are the owner of a small business; you're self-employed; or you deal with the financial side of any stock related business, then you'll have probably heard about ‘factoring and cash flow’. However, many people do not understand what it means and how factoring and cash flow works.

Put simply, factoring is a process whereby you send invoices to your customer and a copy to a "factoring company". The factoring company will then process the invoices and pay up to 95% of their worth directly into your account.

For some, this can be a useful funding/credit option.

How Much Do I Pay?

The fees offered by a factoring and cash flow lender will differ, however, generally speaking, they will charge in the region of 0.5% and 3% of your turnover as a service fee. The service fee will cover you for the daily servicing/management of your purchase ledger.

Interest is also charged against the total amount of each of your invoices, this is usually set at a fixed percent above the factoring. This differs from a typical bank loan, most of which involve substantial initial arrangement fees and ongoing interest on the amount borrowed.

Why Choose Factoring?

Why should I choose to factor if I lose money, when I could simply wait for full payment from the customer? Could factoring actually damage your business?

Many people who run businesses find they can free up time otherwise spent on processing invoices by using the services of a factoring lender. In short, invoice factoring can allow staff to get on with their ‘day’ job and worry less about the invoicing side of the business.

Additionally, factoring can be a great option for any businesses that heavily rely on the payment of invoices in order to secure new stock or assets – by using a factoring lender, cash can be freed up when it is most needed by the business.

Is Factoring Popular?

To this end, invoice factoring is a very popular option for sectors in which the main asset for a business is invoicing. It's also increasingly popular for smaller businesses who do not own their own in-house credit departments.

Releasing capital from invoices within days means businesses can inject cash into other areas of business, such as stock procurement, the payment of bills/suppliers and to implement new marketing/sales strategies.

Quite often, businesses will struggle to fill the gap between the raising of an invoice and payment – and that’s where factoring can help. Businesses do not have to worry about taking out large business loans that they will struggle to pay back, and they won’t have to secure loans against their property (i.e. the machinery used to run a business).

Useful Links

Gov.uk - https://www.gov.uk/

Lloyds Bank - http://www.lloydsbankcommercialfinance.co.uk/

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Useful Websites

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  • UK Factoring Helpline
    A leading finance brokerage specialising in factoring and invoice discounting
  • Business Expert
    Business Expert provides a unique business finance platform for UK SMEs. With invoice discounting and factoring, we can help support your business financially.
  • Cashflow UK
    A leading UK factoring and invoice discounting broker.
  • Venture Finance PLC (UK)
    Offer businesses complete solutions for cash flow improvement, invoice factoring, receivables finance and more
  • FaCTS International
    Internationally renowned training and consultancy company, designing and delivering specialised training, development and education programmes for the world's factoring and discounting industry
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