Do you want access to cash tied up in invoices? Do you need funds to relieve cash flow pressures? Invoice factoring is the ideal finance solution for you. It is an efficient way to improve cash flow and manage collections from your customers.
Invoice factoring is a way for a company to raise funds. You sell your invoice to a lender or factoring company at a discount. Invoice factoring helps businesses release cash from their debtor book. It is a specialized package for businesses that receive payment after invoicing their customers.
You receive funds from a factoring provider against your customer invoices. This enables you to receive the cash value of the invoice immediately instead of waiting a long time to get paid by your customers. Unlike invoice discounting, your lender manages credit control on your behalf.
The available finance is stated as a percentage of your outstanding sales ledger or debtor book. However, it may be controlled by limiting exposure to a single large customer.
A business signs an agreement with the factoring company. The factoring company manages the credit control and sales ledger of the business for a fixed period, usually 2 years.
In exchange, the business receives funds upfront whenever they send an invoice to a customer. The fund is usually between 70%-85% of the invoice cash value.
The factoring company collects the debt when the customer pays. The remaining balance is available to the business client after fees are deducted.Fees are calculated based on:
For factoring to work, customer payments are processed through a bank account controlled by the factoring company. To minimize exposure to bad debt, some providers offer the option to credit insure some customers on your entire sales ledger.
The lender has more control over collecting debt from your customers. Hence, invoice factoring poses a lower risk when compared to other finance options. It’s a great option for businesses facing challenging circumstances such as a short trading history or low turnover.Your business is suitable for invoice factoring if you: