Business Funding

Account Receivables Factoring Explained

Account receivables factoring

Account receivables factoring is the process of selling accounts receivable or invoices in order to obtain immediate working capital for your business, it is a very useful way of using funds which are owed to you before receiving payment. A financial services company can provide two distinctly different options, invoice discounting and factoring.

What Is Invoice Discounting?

If you make use of an invoice discounting service the responsibility for collecting debts remains with you and your customers should not even notice the difference. The payments that you receive get paid into a bank account which is administered by the invoice discounter, you will then receive the balance minus any charges incurred. Invoice discounting is normally only made available to businesses that have the correct systems in place to ensure reliable collections from their customers.

What Is Factoring?

Factors on the other hand will buy your trade debts and then collect the debt from the customer themselves. Reputable factors will collect funds in a professional manner so the relationship between you and your customers should remain largely unaffected. There are some factors that also provide bad debt insurance which can add an extra level of security to your income. Newly established companies are more likely to be encouraged to use factoring services in the first instance until they are able to demonstrate that they would have an infrastructure capable of collecting debt effectively and then at a later stage be moved to an invoice discounting facility.

Both factors and invoice discounters in the UK typically pay 80% to 85% up front against valid invoices. There are some circumstances though where a higher sum can be arranged, especially if a successful history has been built up between the two parties.

Once the factoring facility is in place, there is no limit to the amount you can borrow as the level of finance is directly linked to the level of sales. So as your business grows so does the amount of funding available to you. This is in sharp contrast to bank overdrafts, which require regular re-negotiation and arrangement fees.

Is Factoring Suitable For Our Company?

The most suitable candidates for factoring and invoice discounting are growing businesses because finance will grow proportionately as turnover increases. Although this is a relatively low cost way of increasing your cash flow it would be wise to examine the costs of alternative options before entering into an agreement. Also debt finance providers tend to prefer firms which receive invoices where it is clear that the goods or services have been delivered and few payment disputes or credit notes have occurred.

A potentially costly mistake which some companies make when arranging a factoring service is picking the first provider they come across. There are so many options out there that simply looking in the phone book is probably not going to get you the best deal.

Here are some questions to consider when choosing a factoring company:

However, simply contact us and we can do the leg work for you. Over our ten years in business we have built up relationships with a wide range of UK factoring providers, so that we can help you find the best deal for you and your specific requirements. Best of all our brokering service is FREE OF CHARGE! So get in touch today and learn about the great account receivables factoring deals we can offer you.

For further information about invoice discounting see:



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