Tag Archives: financing

Invoices paid

Invoice Factoring

An increasingly popular method of regulating a business’ cash flow is to sign up to invoice factoring or financing and release the book debts quicker than the customers may pay you. It is therefore often appealing to start-ups or growing businesses. There are pros and cons of undertaking such a step as follows:-

Pros

  • You may typically receive up to 80-90% of the value of your outstanding invoices very soon after raising the bill, often within 24 hours.
  • The factoring company chases up the debt to take the task of debt collection out of your hands (factoring only).
  • You may be able to take out bad debt protection to cover a possible non-payment by a customer (non-recourse).
  • It will provide the immediate cash to assist you in growing your business.
  • You are not taking out a business loan but borrowing in line with work and bills already completed.
  • The security is against the book debts, not against the physical property or machinery of the business.

Cons

  • Financing costs can be in the form of interest, at 1.5%-3% over base of the value of the amount receivable calculated daily and applied monthly; fees, in the form of an administration charge and; bad debt protection (non-recourse).
  • Customers may be wary of being chased by the factoring company. Note, invoice financing may be preferable as you retain responsibility for your credit control function.
  • Credit limits may be set for your customers by the factoring company.
  • Exiting the agreement can be difficult.
  • Recourse factoring can mean you have to repay any debts that default.

If you are considering this option or would like to know whether it will benefit your business, please speak to Clare Vaughan on 10872 271655 or email clare.vaughan@kelsallsteele.co.uk