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Stories Tagged ‘Factoring’

For many businesses invoices discounting provides the cash that is needed to ensure that their business can survive. Without the necessary cash they cannot pay employees or suppliers. Customer payment patterns can be erratic and can cause cash flow issues and headaches.

Invoice discounting is typically the cheaper of the invoice finance facilities available to businesses. It can also be confidential meaning your customers are unaware of any lenders involvement.

In terms of qualifying for invoice discounting it really rests on processes rather than financial performance. Don’t get me wrong financial performance is important but without the right processes in place you will not qualify for invoice discounting no matter how profitable you may be.

There are 2 main process that will be looked at. Your invoicing process will be interogated. It is important that a good audit trail exists and that invoices are raised in arrears of delivery.

Your credit control process or procedure is also important to demonstrate that debts are collected methodically and professionally rather than not at all or on an ad hoc basis when you have time.

If your invoicing process is not right it is unlikely any type of invoice finance facility will be made available. If your credit control procedures are not adequate it is likely a factoring facility would be offered rather than an invoice discounting facility.

Invoice finance quotes can differ dramatically.

They can differ in different ways and for different reasons and it is important to compare like with like. We have touched on this elsewhere on this forum and this article is worth a read – http://www.invoicefactoringforum.com/invoice-factoring-quotes-comparison/

However, when considering any invoice finance quote is is important to understand the following:

  • what service is actually being offered. Please remember that a full factoring offer that includes a credit control service and bad debt protection will cost less than a finance only facility.
  • have you considered total costs? different companies charge different fees beyond the headline rates of the service fee and the discounting fee. Some service fees are all inclusive while other companies charge for nearly everything on top of the service fee.
  • What is the quality of the service? Remember you get what you pay for.
  • Is the structure of the facility right for your company? If not then no matter how cheap it is you are wasting your money.

I feel it is important to find the right structure and then properly evaluate total costs to allow a genuine comparison.

 

We were recently approached by a haulage business based in Glasgow who wanted to review their facility. It was a very nice business and they advised that they had only ever reviewed their facility with the Scottish banks. Given the recent well publicised problems they wanted to look at other alternatives. It should also be stated that they are a Scottish registered company.

While we knew the companies that could provide factoring Glasgow to a Scottish registered company we decided to go back to the market to see if anyone new had this capability. We were delighted to see that a few new lenders now had the capability to help businesses based in Scotland and were very keen to do so.

In short we were able to source a very competitive facility for our client.

If you are a business based in Glasgow or anywhere else in Scotland it really is worth exploring what opportunities are available to you.

Debt factoring is not the best of terms when speaking about invoice factoring or factoring. However, it is a commonly used term.

In essence debt factoring, factoring and invoice factoring are all the same thing.

If you have invoices or debts outstanding from your customers then you can release valuable cash by debt factoring. factoring companies will pay you up to 90% of the gross invoice value and they will give you the balance when your customer pays.

Factoring is a valuable source of Factoring is also an opportunity to outsource the credit control function of the business. This ensures that the debts are collected in a methodical and effective manner which reduces your borrowing costs and reduces the risk of non payment.

The credit control does mean that factoring is more of a service than a finance facility and as such can differ dramatically from lender to lender.  Factoring companies will use a variety of methods to chase outstanding debts. Some invoice finance lenders offer the most basic service of  sending out automated letters and statements which in itself is at least a methodical approach which should produce satisfactory results. Other companies will add to this basic service and will telephone each debtor to chase the outstanding invoices. This more hands on approach should be more effective and will allow disputes to be highlighted quickly.

It is important when comparing quotes to establish what service you are receiving for your money.

Factoring also offers an advantage to a lender over an invoice discounting facility. Over and above the additional income generated by a factoring facility it also reduces the risk of a lender. They are closer to your customers and in the event of failure the invoice factoring company is better placed to collect the debt as they have always been actively involved. By having contact with customers they can also verify that invoices are genuine and the risk of fraud is reduced.

So factoring offers benefits to both invoice factoring companies and borrowers alike.