Factoring is a common type of invoice finance and widely used in UK business. With factoring, you effectively sell unpaid invoices to a lender who will pay you a cash advance based on a percentage of the invoice’s value – generally around 80% to 90% of the total.
This type of invoice finance is very similar to discounting; the key difference being that the sales ledger will be controlled by the lender who will be responsible for collecting payments from customers, saving you time chasing outstanding invoices.
With a number of business finance options available to most businesses, it can be difficult to know which one is the most appropriate, but factoring could be a good option if:
- Your credit control procedures are robust, and known to be effective
- You have minimal bad debts
- Your customers pay on time in the main
- Customers have a minimum of 30 days in which to pay
- You meet the minimum level of turnover required by the lender
Factoring solutions are usually more widely available to established businesses rather than start-ups which, by their nature, would not have reliable turnover and credit management processes.
The factoring market is fierce with lending based on the value of invoices, and it is a good idea to obtain professional advice on which type of factoring contract would be most suitable for your business. UK Business Finance can offer the professional guidance you need when considering factoring. We are able to advise on whether this is the right type of finance for your business, and help you understand the benefits offered in more detail. Alternatively, we can ascertain whether a different finance solution is more suitable in your circumstances.