A factoring service is effectively the process of ‘selling’ unpaid invoices for cash. As soon as the Factor (lender) receives a copy of the invoice, they effectively ‘buy’ that invoice at an agreed percentage of the invoice value – typically 80-90% – and the business will receive the money straight away. The balance, less an agreed service charge, is paid when the customer pays, and the Factor undertakes all credit management and collections activity following an agreed credit policy.
Once a business has fulfilled a customer’s order, it raises an invoice and a copy is sent to the Factoring partner. The Factor will make available the agreed prepayment percentage of the invoice value, less an agreed service charge. The Factor is then usually responsible for collecting the outstanding payment from the customer(s). There may, however, be times when the business wants to manage the debt in-house. Once payment is collected, the Factor will credit the account with the remaining balance.
The principal advantage of Factoring is that it gives businesses an immediate injection of cash. Rather than having to wait 30 days, or perhaps even longer, the business will have money immediately available to re-invest. Having cash up front enables the business to pay its suppliers faster and negotiate better terms as a result, taking full advantage of supplier discounts for early settlement.
A further advantage of Factoring is that the credit management function, including collections, can be taken away from the business. It is effectively outsourcing the sales ledger management to the Factor, allowing it to get on with what it does best, running the business, without the worry of not being paid.
Touch Financial is the specialist broking division of the SFP Group.
Set up in 2008, it has become the largest invoice finance brokerage in the UK, winning numerous awards for its service and has assisted thousands of business owners nationwide secure funding.
It is authorised and regulated by the Financial Conduct Authority and prides itself on delivering a high quality service.
If you are a business owner considering invoice finance for the first time, seeking a replacement to an existing invoice finance facility or just looking into alternative funding options to a standard loan or overdraft for your business then contact Touch Financial today for a free consultation about your requirements.