Business financing simplified
in a nutshell
Factoring is an invoice finance product whereby the borrower sells their invoices to the factoring lender in exchange for upfront cash. With factoring, the finance company makes available usually between 70 & 85% of the invoice value, and then also gets involved in the collection of the debt. The lender tends to be involved in managing the sales ledger and also managing the credit control.
Compared to Invoice Discounting, the lender is much more involved with the business in factoring – they will ‘mirror the ledger’ and the borrower will need to re-divert customer payments to the lender’s trust account, and introduce a credit collection agent at the lender, who will collect the debt on your behalf.
Security required depends on the lender but most likely lenders will need an all assets debenture plus there is likely to also be some sort of guarantee, either a personal guarantee or a form of anti-fraud indemnity.