Welcome to The UK Office HelpdeskInvoice Factoring Problems? - Invoice Factoring Solutions!
  home | contact us | iva   email us

Cash Flow Management

How does invoice financing work?

In simple terms, you assign your sales ledger debts to the factor for a specified length of time. Typically this will be twelve months, but some factors will now accept periods as short as three months. They charge you a service fee for handling the facility, and interest on the money which they are lending you on the security of your invoices. The deal may be ‘without recourse’, where the factor accepts the credit risk, or ‘with recourse’, where you retain the credit risk. In certain situations, such as exceptionally large value invoices, your factor may require you to take out credit insurance, which will provide you with the funds to reimburse them if they are unable to collect. Most factors can provide this insurance at a cost of between 1 and 1.5 percent; some require you to buy this cover from them, others will allow you to obtain it elsewhere.

Factors providing finance on a ‘non-recourse’ basis are usually fairly picky about the type of clients they will accept. If your business comes into one of their high-risk categories they may only offer a smaller initial advance against your invoices.

Factors will accept export sales ledgers as well as domestic ones, and this can iron out many of the difficulties which a small business would otherwise have with collecting money from a variety of foreign countries, where the culture of payment can be very different to that of the UK. And although most foreign businesses these days have someone on the sales or purchasing side who has good English skills, it is quite likely that their accounting staff may not. Factors who specialise in export finance have their own staff who can speak all the relevant languages and, if necessary, who know how to chase reluctant payers; many actually have an associate with an office in the debtors’ country.

In general, factors and invoice discounters like you to have a big spread of customers. Some set a minimum of six, but there are some that will fund single debtor sales ledgers at a lower advance rate. If you are expecting a big order, which will put a high percentage of your sales ledger debt with one customer, your factor will expect you to give advance warning so they can ensure that the customer is credit-worthy and provide guidance on the level of funding you can expect on that invoice.

back to top

home | contact us | email us

welcome to factoring
introduction to factoring
factoring - enquiry form
factoring - the facts
how does factoring work?
how does invoice discounting vary from factoring?
how does invoice financing work?
possible disadvantages of factoring
improve your business cash flow
why factoring?
how do I set up a facility?
the solution for owner managed businesses?
is factoring for you?
are your clients credit worthy?
how to reduce business risk
effective debt collection
what if your clients will not pay?
the iva procedure
why you should pay your invoices on time
what is trade credit insurance?
Help is just a call away - 0800 597 4757