FIRSTfactor
FINANCE
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Working Capital Specialists

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FACTORING

Factoring is all about improving cash flow resources

As a small business owner, you know firsthand the struggle of obtaining working capital to finance the growth of your business, meet cash flow shortages or unexpected demands. Business financing such as Bank loans, overdrafts and general credit are being restricted. With Banks becoming increasingly inflexible Factoring is the sensible alternative to be considered.

Factoring is becoming an extremely valuable alternative for businesses looking to raise working capital. Unfortunately, having a profitable business does not necessarily mean that you have a reliable cash flow. The opposite is sometimes true; a business may have great profits and a very unreliable cash flow. Factoring can provide access to a brand new pool of cash, releasing working capital that would otherwise be tied up in your outstanding debtor book. This provides businesses ranging from start-ups, mid-size, and large companies access to immediate working capital as well as providing cash flow for expansion without incurring debt or reducing owner’s equity.

Do you have customers that are taking 30, 60 or 90 days to pay their invoices? Slow paying customers are to be expected in today’s business environment after all they are probably being stretched by their customers too. They are making managing cash flow a very difficult task. Paying suppliers, salaries and rent becomes a challenge. Factoring is a financial solution that allows you to unlock your money tied up in giving trade credit almost immediately.

Some business owners make the mistake of thinking that Factoring is going to be too expensive, but the reality is that the benefits significantly outweigh the costs concerned if used effectively. Factoring releases real money that belongs to you, is earned by you, but very much out of reach until your customer decides to pay you. Using the additional working capital to your advantage can offset the costs (like taking advantage of early settlement discounts from suppliers for instance. Often discounts of 5, 10 and 15% can be obtained from suppliers by paying them in 7 or 10 days).

Factoring provides a great solution for a specific problem; the gap generated between invoicing your customers for services and receiving their payment. If you have customers that are taking credit and you need finance to cover business expenses, Factoring invoices is a great alternative to conventional business loans or overdrafts.

BENEFITS OF FACTORING BUSINESS CUSTOMERS

One of the best-kept secrets of business finance is Factoring

The major advantage of accounts receivable Factoring is that it is easier to obtain than a business loan or overdraft from a Bank. The facility is approved based on the credit worthiness of your customers and the type of service you supply them with. A Factoring line can be set up in about a week, and the biggest requirement for approval is that do you business with credit worthy customers. Using a Factoring service a business gains a valuable financial partner who can provide administration, working capital, business expertise, and business guidance. With Factoring in place, a business is able to focus on developing, producing, and selling its products or services.

TYPES OF FACTORING COMPANIES

The best factoring company

One question we keep being asked is “why is Factoring referred to by so many different names? It is very confusing”. Great question. In the UK the Factoring and Invoice Discounting sector is completely unregulated and therefore there are no standards to attain. Just like no two businesses being the same, no two Factoring companies are alike and therefore to try and differentiate themselves Factoring companies use different names to describe their products; Factoring, Invoice Factoring, Invoice Finance, Confidential Factoring, Business Finance, Spot Factoring and Receivable Factoring all mean exactly the same thing. On one level they are all the same. They value a customers/invoices and provide you with early settlement of outstanding invoices for a fee. That’s where the similarities end. Each company has their own operating instructions and way of working.

Factoring services range from single invoices and customers right through to your complete sales ledger, including export customers. For the ultimate in flexibility single invoices and or customers is a great solution. This type of facility is designed to be used on an ad hoc basis only when the need arises. This is a great way to even out your cash flow when you received the unexpected large order for instance. The facility can be turned on or off, as you like. There are no long term contracts to worry about. If you are experiencing sustained growth whole ledger Factoring is an ideal solution. This is designed for business who may want to use Factoring right through a growth phase, say 2, 3, 4 or more years.

FINDING THE RIGHT FACTORING FINANCE SOLUTION

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One big advantage of Factoring is that it is relatively easy to obtain. However, there are two important elements in an effective invoice factoring relationship from your perspective, the costs and process. The biggest qualification requirement is that you do business with reliable, credit worthy customers. Generally, the set up process takes about a week and after that you can get funding within a business day for your existing debtor book and same day when you submit fresh invoices.

Taking the accounts receivable funding plunge can be the difference between company survival and bankruptcy when cash flow is tight. Carefully consider all your options:

  • The Factoring industry is not regulated in the UK

  • All Factoring companies services differ with some specializing in particular sectors and offer advantageous terms to the right customers

  • Take time to inspect contracts

  • Consider the daily working relationship you have with your Factoring company

When shopping around for Factoring make sure you do not make decisions purely on price. Although this is important you need to also make sure that the service you will receive will meet your business requirements.

We can help guide you through the whole process putting you into a fully informed position.