Business financing simplified

Invoice Factoring

Business financing simplified

Invoice Factoring
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.

Some of our lenders

Working Capital

By effectively making your outstanding invoices get paid on the day they are raised, businesses get an enormous working capital boost.

BENEFITS

Credit Control

If you suffer with poor credit control, the factoring company will be a breath of fresh air, they will collect your debts on your behalf, often significantly lowering the levels of overdue invoices on a sales ledger.

BENEFITS

Payment terms

By working with a factoring company, businesses previously who have had to cede margins or even decline business based on payment terms, now have the ability to work with these types of customer.

BENEFITS

Businesses of all sizes

Because factoring companies work so closely with the borrower and they are able to validate invoices directly, even start up businesses can get factoring.

BENEFITS

Who is Eligible?

  • All businesses including startups.
  • Must be business-2-business.
  • Must sell to customers on terms.
  • Can sit alongside other loans.

How does it work?

1. Assessment: Understanding the business, the sector, the sales process, the customers, and the profile of the ledgers. Creating an application for the suitable lenders.

2. Application: Making applications to lenders and ensuring the lenders get a good understanding of the profile of the debt and the business. The application process may involve face-to-face time with the lender on-site or virtually.

3. Funding: After the offer is made and the legal documents signed, the lender will make the funds available and you can then opt to draw down the amount required.

How Much Does It Cost?

Selective Invoice finance, at the headline level, is significantly more expensive than invoice discounting or factoring, but because the borrower can select what they want to fund against, the net cost of the same benefit often is broadly the same. 

Expect to pay 1-4% per month on each borrowed invoice, (dependent on the lender, borrower profile, and profile of the debt) but expect the fee structure to be clear and transparent – i.e. don’t expect to pay hefty commitment fees or setup fees.

FAQ's

For the vast majority of lenders, the answer is no. The majority of facilities are truly selective, where you can choose a single invoice to be funded, fund against it, get it paid, and then never use the facility again.

Bad debt protection (credit insurance) is normally an as-standard addition on selective invoice finance, which adds to the cost, but (between 0.2 and 0.6% per invoice) but it protects both the borrower and the lender from the insolvency of the debtors.

The process can be very fast from application to funding. We have seen same-day funding, but it is worth noting that for an invoice to be eligible, the debtor will have to have the lender bank details and the goods/services will have had to be delivered and signed off prior to the release of any funds.

The lender will want to look at your company financials, but they will be most interested in taking a detailed look at an ‘audit trail’ of a typical transaction with your main customer(s) – this will likely involve your contract, a purchase order, any sign off of works/proof of delivery, your invoice and then a remittance advice/bank statement confirming the invoice has been paid.

Qualifing questions

Can I Borrow?

Get Invoice Finance

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Get Invoice Finance

Please pop your details in the form below and we’ll get back to you within 24 hours.

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