Factoring

The business of debt factoring involves selling your invoices to a third party (factor). This service is often used by companies who want or need to improve their cash flow situation.

At the end of every month all invoices are submitted to the factor either electronically over the web or by post. The factoring company will process the number and value of invoices allowing you to draw monies against the money owed to your business.

Many small businesses do not possess particularly advanced systems for credit control and collection of debts. With factoring it is possible to outsource this part of your business to the factor.

You can also take advantage of a more sophisticated system for credit rating potential new customers, and remove the hassle for issuing statements to customers. Your company will however, remain responsible for reimbursing the factor for bad debts, unless you have arranged a 'non-recourse' facility.

You will agree a pre-determined percentage of the value of your invoices to be drawn down immediately (within 24 hours), often up to 85-90%. If your business has a turnover of more than £200,000 it might be beneficial to make factoring enquiries. Their are charges associated with factoring, including credit management and administration charges, and credit protection charges.