If you have a business that offers credit terms you can spend a lot of time worrying when you are going to get paid. Cash flow is probably the major challenge for any business and this is why more and more businesses in the UK are starting to use invoice factoring.
Invoice factoring offers businesses the opportunity to access up to 90% of the value tied up in unpaid invoices. This means that by using invoice factoring a business can smooth cash flow and access cash to pay salaries and suppliers when needed. Not only does this eliminate stress it also allows a business to grow and prosper. Invoice factoring also offers the opportunity to outsource your credit control function to a professional business that will chase your outstanding invoices with a system of letters, month end statements and phone calls where necessary.
Will your business be suitable for invoice factoring? Well unlike traditional forms of finance where your financial performance or personal assets are key, invoice finance rests more on the processes you use to raise invoices and on the quality of the customers that you are dealing with. The most basic criteria for invoice factoring is that you sell on credit terms to other businesses and that you raise your invoices in arrears of delivery of your product or service.
What should I consider when setting up an invoice factoring facility? I think the three main areas to consider and structure, pricing and service levels.
With regards to structuring an invoice factoring facility you need to ensure that restrictions are kept to a minimum. Things that can restrict the cash generated include the overall facility limit, individual debtor limits, concentration limits and export caps. Structure has to be the primary focus when setting up any invoice finance facility.
Pricing can be difficult. Whilst all lenders will quote the headline rates of the service fee and the discounting fee it is important to consider the total costs of operating a facility. What are the additional fees?
Service levels are also important. Some of the smaller invoice factoring companies offer a more hands on service while the larger bank providers can offer a cheaper lower touch approach.
If you are looking for an invoice factoring facility for your business why not contact us today for some impartial and independent advice. We would be happy to talk with you.
