This frees the funds locked up in sales invoices. A client can typically raise up to 85% of the value of its unpaid invoices within 48 hours. The balance is available, less a small administration charge, when the client’s customer pays.
A dedicated sales ledger and credit management service is also provided. Working to our client’s instructions we collect invoice payment but ensure good customer relationships are maintained.
Benefits – The business gains access to an on-going source of funds that is linked directly to sales and so a smooth cash flow is assured. It can improve profitability as the business can pay suppliers earlier, buy in larger quantities and also take advantage of discounts that are available.
Businesses using a factoring facility save costs on staff, postage, stationery, telephone calls and, most importantly, valuable management time can be used more productively.
A finance-only service that is designed for businesses with a typical turnover of at least £100,000 who wish to run their own sales ledger and credit management.
The facility turns unpaid sales invoices into an immediate source of working capital confidentially, neither customers or suppliers will be aware of the financial arrangement.
Benefits – The facility provides a flexible source of finance that automatically expands with sales. It allows the business to retain full control of its sales ledger and customer contact. The charges are lower than those for a factoring service.
What are the costs?
There are two charges just like a bank – a finance charge and also a service fee.
The finance charge for the Factoring Agent’s services is typically between 2-3% above base rate, on funds actually used. The money is drawn down at the clients discretion. Our charge is extremely competitive compared with other sources of finance, and is far more flexible.
Factoring – the service fee, for running with the sales ledger and credit management service ranges from 0.5 – 3% of the invoice turnover handled – the average fee is typically around 1.2%. A business with a turnover of £500k would be paying for example around £6K a year, this compares very favourably with the cost of running a sales ledger in-house.
Invoice Discounting – the service fees range from 0.1 -1% of invoice turnover. The facility averages around 0.25% of invoice value.
How quickly can a facility be set up and is there a minimum period? To minimise the fuss and formalities of setting up both factoring and invoice discounting facilities, and they can be arrange din a matter of a few working days when timing is critical. The agreement is normally based on a minimum period of one year with 3 month’s notice of termination required from either party.
What kind of business can take advantage of this method of tailored finance? Sole Traders, Partnerships and Limited Companies – they all sell their product or service to other businesses who pay on credit terms. Clients are mainly in the manufacturing, distribution and service industries. They all need to make the most of the value of their unpaid invoices to finance growth, but they still want to be firmly in control of their own businesses.
The following information, and the criteria required for a Factoring Invoice Discounting facility, may be helpful in determining whether you are suitable to take advantage of a Factoring Agent’s services.
Typical Positive Criteria
A business which:
- Is, or may be, held back through lack of cash flow
- Needs professional sales ledger administration and credit control support
- Is well managed, has a reasonable spread of customers, and offers a quality product or service that is mainly sold on credit terms
- Is capable of administering its own sales ledger, but where traditional bank lending criteria will not allow for increased facilities to be offered
Typical Negative Criteria
A business which:
- Is showing serious losses and a deteriorating net worth
- Is in the building industry and is involved in contract and stage-payment invoicing
- Is producing garments for the “cheaper end” of the market
- Is in the haulage industry – usually confined to moving trailers and containers
- Is a freight forwarder
- Derives turnover from advertising in “freesheet” journals/newspapers
- Sells principally to members of the public
- Has a large quantity of disputed invoices and a high level of credit notes