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Invoice factoring

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When payments either take a long time or are delayed, your business’ cash flow can suffer. Invoice factoring can help negate these issues by granting you quick access to the funds you need to help your business prosper.

Invoice factoring generally works as so:

  • After raising an invoice, a copy is forwarded to the factoring company. They send you up to 90% of the invoice amount. Cash is often distributed within 24 hours.
  • Once the customer pays the full amount, the factoring company distributes the remaining balance, minus their fee.

This fast access to cash makes factoring an effective way to deal with invoices with long periods between being raised and paid. It also works well for clients who don’t pay on time. The process’ fast access to funds meaning you don’t need to worry about credit-control.

How invoice factoring works

Speak to one of our friendly, initial advisors if you’d like to explore invoice factoring. If they decide it’s best for you, the process will be as follows.

  • Raise an invoice. Invoice your customer as normal and send a copy of the invoice to the factoring company.
  • Funds are distributed. The factoring company advances you a portion of the invoiced amount, up to 90%. Usually within 24 hours of receiving the invoice.
  • Your customer pays the factoring company. When the customer does pay the invoice, it will go to the factoring company rather than directly to you.
  • Remaining fees distributed. The funder sends you the invoice’s remaining balance, minus their fees.

Advantages of invoice factoring

In addition to granting your business quick access to the funds to keep your cash flow moving, with the right factoring company, invoice factoring can have other benefits.

  • Adds consistency to your cash flow, limiting the effects of those clients who might pay late, or whose invoices take a while to clear.
  • The factoring company takes control of your credit control. Meaning they will chase late payments. Reducing the time spent chasing unpaid invoices, and releases any funds tied up in them, allowing your business to expand and pay its liabilities.
  • Can be beneficial for new and start-up businesses, as factoring companies are more concerned about credit, customer quality and customer spread than banks, who are more concerned about financial information. Factoring companies may lend where banks would be reluctant to.
invoice factoring

Could invoice factoring help you?

Invoice factoring is best suited for small to medium-sized businesses or start-ups. Once you sign up, the factoring company will manage your ledger and deal with your customers. Doing so leaves more time for you to run your business’ day-to-day activities and allow it to continue growing.
If your business is larger in scale or has existing credit management procedures, invoice discounting may be a better option. Allowing you to stay in control of your invoices, and keep the process confidential.

More information about invoice discounting

In summary

Invoice factoring can help negate the effects of late invoices of those which take longer than 30 days to reach your account. Factoring companies can provide fast injections of cash, adding consistency to your cash flow and managing your credit control for you. It also takes the pressure of chasing invoices off your shoulders, allowing you to get on with running and growing your business.

How we can help

If invoice factoring sounds like the solution for your business; whether it’s to deal with unpaid invoices or allow you more time to get on with running it, speak to us. Our team has years of experience and well-established relationships with several funders; we’re well placed to help find the best financial solution for your business. Contact our initial advisors today for free initial, impartial advice with no obligation.

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Authored by Richard Froggatt

Richard Froggatt

Senior Consultant

Beverley Horton Christopher Callaghan Stephen Hall

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