Factoring frequently asked questions

• What is Factoring?

  It is an arrangement between a Factoring Company and a business whereby the Factoring Company provides typically up to 95% cash available against the unpaid invoices of a business. A Factoring Company also relieves the burden of routine tasks such as sales ledger management, credit control and credit checking.

• Why won’t the Bank increase my overdraft. They want me to use Factoring?

  Because debtors are often the most appropriate asset to provide security for working capital through Factoring. The Bank is not able to control debtor risk and you need flexibility to develop your business to its full potential. Factoring is a way to increase your working capital and allow your company to grow.

• Why Factoring?

  Factoring provides greater security over a debtor book, that’s all they do. Consequently it is probable that more working capital will be available by a Factoring Company using your debtor book as security. Factoring funding is more able to keep pace with your sales growth and will give you more flexibility. The other benefits of Factoring is will enable you to develop a successful business safely and give the business competitive advantages.

• Debt collectors will upset my customers?

  No! It is in the Factoring Company's interest that you should grow the business and so a Factoring Company is very conscious of the need to promote good debtor relationships. Factoring Companies will bring professionalism and 'big company' power to collection practice, however credit control can be firm and professional and still be polite. You should agreed in advance to get the right balance with the Factoring Company.

• Isn't Factoring expensive though?

  Not if it helps you increase profits. Factoring funds will be very similar in cost to Bank overdraft. The Factoring service fee must be viewed against the savings that can be made and the ability to increase income: 10% reduction on debtors of £100k will save circa£850 per annum (money cost @ 8.5%) plus improvement in liquid capital of £10k. Better terms from suppliers for early settlement. Discontinue early settlement discount to debtors. Postage/stationery/telephone/telex - real costs rarely evaluated. Computer costs/capacity. Bad debt costs. Legal charges. Reduce/redeploy credit control staff/premises. Release management time. Ability to grow quickly/safely

• Exactly how much will Factoring cost?

  Factoring money costs will be very similar to overdraft. Factoring service fee will depend upon the type of facility, number of invoices, number of customers and risk assessment for credit protection if required. If you can complete the get quote information pages, we will be able to give you an accurate Factoring price indication.

• Will my customer/suppliers think I am going bust if I Factor?

  Not nowadays. To the contrary, many large Companies welcome Factoring involvement: They will get accurate statements and sales ledger administration as part of the customer's service. They know the customer can get Factoring Finance for large orders. They know the customer has access to Factoring credit protection. They will feel more confident regarding continuity of supply.

• What type of receivable is acceptable to a Factoring Company?

  Any valid invoice for services already performed that has not been pledged to another entity will be usually acceptable to Factoring Companies.

• Are Government receivables acceptable to Factoring Companies?

  Yes!

• How do Factors collect?

  The same way you would collect, albeit Factoring Companies agree a method and stick to it: you invoice your customer for the service you performed. They then take over all collection responsibilities.

• Is the invoice on our letterhead or yours?

  You inform your customer that the financial rights to the invoice have been sold to a Factoring Company. You continue to invoice normally. Checks are made payable to the Factor and mailed to the Factoring Company.

• What will my customers think if I start Factoring?

  Factoring is used by many of the largest corporations in the world to improve cash flow, support growth, and increase profits. Many of your customers may use Factoring themselves and others have become familiar with it through other vendors. The fact that you qualify for this Factoring "credit line" makes a strong positive statement. Factoring Companies are here to help you grow and become even more successful.

• What is required before Factoring an invoice?

  The work/goods must have been completed, delivered and accepted; and your customer must be a creditworthy risk.

• Can we qualify for Factoring if we have a history of credit problems such as Bankruptcy, CVA liens or judgments?

  Yes! Different Factoring Companies have different lending criteria. We can help you find the right Factoring Company to fit your circumstances.

• How do Factoring requirements compare to debt financing?

  Unlike debt financing requirements, Factoring does not usually require a history of profitability.

• How quickly can I expect to receive my money from a Factoring Company?

  Once an account has been established by the Factoring Company, you can receive cash advances usually within 24 hours on an approved credit risk.

• Can we qualify for Factoring if we already have existing credit lines or loans?

  Yes!

• Can we qualify even if we are just starting in business and have no credit history?

  Yes, if you have creditworthy customers.

• How do you make money?

  We get our fee from the Factors marketing budget.

• What happens if my customer does not pay the Factoring Company?

  Non-recourse Factoring, assumes the risk of your customer not being financially able to pay for the services provided. However, the Factoring Company would not assume the risk of non-payment due to disputes regarding quality or timeliness of goods or services. Recourse Factoring you would assume the risk.

• Are there any geographical restrictions to your service?

  No!

• Will Factoring be good for my business?

  Yes, as long as you wisely use the additional time and cash derived from Factoring. Factoring can be quite beneficial if you use it as a means to increase your sales, improve your credit, take advantage of early payment discounts or focus on managing your business.

• How do I get started?

  It's simple. Call us or complete get a Factoring quote. We will contact you promptly to discuss the next step.

• What advance can I get against my ledger?

  Up to 90% is typical of the value of each of your invoices, immediately they are raised and accepted by the Factoring Company. The percentage of invoices available to you is agreed in advance by the Factoring Company, based on the creditworthiness of your customer base, so you know how much cash will be instantly available. Naturally, the balance of your sales invoices is made available as soon as your customers pay by the Factoring Company.

• What is Factoring?

  It is an arrangement between a Factoring Company and a business whereby the factor provides between 75% and 90% cash available against the unpaid invoices of a business. It also relieves the burden of routine tasks such as sales ledger management, credit control and credit checking.

• How can it help my business?

  Factoring can create immediate extra working capital, by advancing cash either the same or the following day against invoices the Factoring Company receives. Factoring also allows the client to concentrate on sales and production functions as the Factoring Company takes care of the credit control process.

• Why would I need Factoring?

  If your business has inappropriate or inadequate financial facilities, a rapidly growing order book or suffers from late payment from debtors, Factoring could meet your cashflow requirements.

• What is the difference between Factoring and Invoice Discounting?

  Both facilities provide immediate cash against invoices. Invoice Discounting is generally a confidential facility where the client continues to run its own sales ledger. A Factoring facility provides a full sales ledger and credit control service.

• What is the difference between recourse and non-recourse Factoring?

  Factoring clients can protect themselves against bad debts with a non-recourse Factoring arrangement. The Factoring Company will cover the client for bad debt losses up to an agreed limit for each customer. With recourse Factoring any bad debt is the responsibility of the client. Naturally there is an additional cost to the client for non-recourse Factoring.

• Are any types of businesses unsuitable for Factoring?

  Factoring can be used for a wide range of businesses offering goods or services on credit terms. However, some types of businesses such as those involved in stage payments or long term contracts, as in the building industry, are unsuitable for Factoring.

• What criteria must my business satisfy to be funded by Factoring?

  Factoring Companies will require a minimum turnover level per annum but there is usually no upper limit. Start up businesses will be considered if they have a satisfactory business plan.

• What security is required?

  Generally a Factoring agreement between the client and the Factoring Company covering purchase of debts by the Factoring Company, in addition to personal guarantees/performance warranties is all that will be required. Occasionally a debenture over book debts or guarantees from associate/parent Companies will be necessary.

• Can I retain my Banking facilities if we use Factoring?

  Yes. Factoring does not disturb an existing Banking relationship. However, it is likely that any existing Bank overdraft facility will be reduced on the commencement of a Factoring relationship but the reduction will be more than compensated by the additional cash made available against invoices by the Factoring facility.

• What about the relationship I have with my customers?

  While the Factoring Company will be in direct contact with your customers, they may welcome your continued involvement in the collection process. In addition, a Factoring facility enables the client to enter into additional sales contracts with far more confidence.

• How can I keep up to date with daily changes on my sales ledger?

  Daily transactions are advised on paper and most Factoring Companies provide a direct link between the Factoring Company and the client who can view their own sales ledger movements as they happen. Any disputes are also notified to clients immediately by the Factoring Company.

• Can you Factor your exports?

  Yes. The Factoring Companies can collect your export debt whether they are invoiced in sterling or local currency. Most Factoring Companies, often using Factoring Companies in the country of import, have the ability to collect the debt in the local language of the debtor and understand the collection process and legal system for collecting debts. An additional charge is normally applicable on Factoring export debts.

• What benefits will Factoring provide for the future prosperity of my business?

  Factoring provides immediate working capital, helps to solve cashflow problems, provides headroom for growth and frees up valuable management time to enable a business to maximise its full potential and enhances ownership value.

• Are there many providers of Factoring services?

  Yes. Well over 80 Factoring Companies in the UK.

• How do I choose the right Factoring facility?

  We will help you. Please call our service is free.