Invoice Factoring is a way to get at money tied up in your invoices. It takes the hassle of chasing and collecting invoices from you, saving you time and helping your cashflow.
A common problem for businesses is waiting for customers to pay invoices. This can put pressure on the company’s cash flow and hold back potential growth.
Using invoice factoring can give you and your business a short term finance solution which is quick to arrange and convenient. The lender will collect the invoice for you so you can concentrate on running your business rather than chasing money
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What Is Invoice Factoring?
Invoice factoring is a form of invoice finance which is used by businesses across various industries. It’s a fast, flexible finance option open to all businesses who raise invoices for customer payment.
It’s an asset backed finance option which effectively lets you sell unpaid invoices to a lender, at a discount, who will give you immediate access to the payment.
Your business sales ledger is used as the loan security.
As well as the benefit of getting paid quickly, you don’t have to worry about collecting the debt as the lender will do it for you. Invoice discounting is a similar facility but you still chase the outstanding invoices yourself.
The lender gives you a ready made credit control services collecting all payments for you, giving your more time to focus on the running of your business.
How Does Invoice Factoring Work?
With invoice factoring when you submit an invoice to your customer for the product or service you’ve provided, you also send one to your lender. The factoring company will forward you between 90% and 100% of the value of the invoice, normally within 24 hours.
They will deal with the customer directly to collect payment. When they’ve been paid you will receive the balance of the invoice payment, less the fees you’ve been charged.
The factoring company charges in two ways to provide this service for you.
You will pay interest on the amount of loan you have outstanding. You will also be charged a percentage of your turn over.
What Are The Benefits Of Invoice Factoring?
Having invoices paid immediately is the first obvious advantage of this type of business finance.
Using invoice factoring is like buying a credit department for your business. It can be advantageous for those who don’t enjoy chasing customers for payment or don’t have time to do it.
- Money can be released within 24 hours
- Receive 90-100% of the invoice immediately
- No need to chase your invoices, the funder does it for you
- Easy application process
The provider is using your sales ledger as the asset for their loan. They may want to credit check your clients and any future clients you take on.
Does Your Company Qualify?
Invoice factoring is available for new and established businesses, as long as invoices are raised to their clients.
This is not suitable for businesses whose clients are individuals, this is for business to business firms.
Your invoices must be of a reasonable amount and have standard terms of collection.
As with all business loans, different lenders cater for different sizes of business. Our panel of lenders are ready and able to lend, give us a call and see how we can help.
Speak to Tim on 01492 233 808.
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