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What is Factoring?
Factoring is the process whereby a factoring company buys a
business' outstanding invoices. The factoring company gives the
business 90% of the invoice value up-front then collects the full
invoice amount from the debtor, taking the 90% and their fee and
handing the business the balance.
Factoring is also described as Debtor Finance,
Invoice Finance, Trade Finance, Invoice Discounting.
According to the Factors and Discounting
Association, the number of businesses who use invoice
discounting for funding has grown by over 20% in the past year.
This has been mirrored by a drop in businesses using overdraft
borrowing. The advantage of using your invoices for finance is
that you can get up to 95% of the value of the invoice within 24
hours. Also, your credit rating is not an issue to the factoring
company
Basically, factoring is short-term lending that
is guaranteed by giving the lender the right to collect your
revenue from a customer you have invoiced. The lender gives you
90% of the invoice value up front: often within 24-hours of you
raising the invoice for your customer. The lender then collects
the full invoice amount from the debtor, takes the 90% + their
reasonable fee, and hand you the balance.
There are many descriptions of factoring being:
Debtor Finance - Invoice Finance - Trade Finance - Invoice
Discounting (similar to Factoring but for businesses that are
well established and with a annual turnover in excess of £250k)
they are basically all the same.
I have no trading history will this count
against me?
One of the major attractions of factoring is the
reliance on your customers credit standing, and NOT your own. In
fact, your credit record may not be good enough to get finance,
but it's not you that has to pay the invoice.
Do I have to repay the factoring company if
the invoice is a write off?
You can cover against write offs. The factoring company act as
your credit control staff, and they are very experienced in
recovering all due amounts from debtors: after all, this is
their business!
I give my customers 60 days credit. Is this a
problem?
Again, NO. Some clients offer 90, 120 and even 6 months credit.
Factoring is very much a personal service. The factor is well
aware of the individual payment terms that are required to
secure business in a competitive world.
I only want to factor some of my customers
invoices. Is this OK?
YES, you can choose who you want to factor.
What to do next?
If you want to talk to someone about how your debts could be
restructured into one affordable payment (without further loans)
so that you no longer have to deal directly with your debts,
click on the link below
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For
Enquiry Form
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