Invoice Factoring - The Definition
Invoice Factoring (also known simply as Factoring) is a flexible Invoice Finance solution that advances working capital to a business as it issues new invoices. Cashflow is the lifeblood of any business and Invoice Factoring simply allows you access to your cash the moment you raise an invoice.
According to Wikipedia, Invoice Factoring is: a financial transaction and a type of debtor finance in which a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at a discount.
It is the umbrella term for many forms of Invoice Factoring, such as Disclosed Invoice Factoring, Confidential Invoice Factoring, Recourse Invoice Factoring and CHOCS.
It is the most common form of Invoice Finance in the UK and the number one alternative to bank overdrafts and bank loans.
Invoice Factoring is different to Invoice Discounting because with Invoice Factoring our team would manage your sales ledger, credit control and collect payments from your customers on your behalf. This would allow you to save time chasing payments and help you focus on the day-to-day running of your business. If however, you would prefer to maintain control over these matters then our Invoice Discounting solution would be more suitable.
Invoice Factoring is the most common form of Invoice Finance in the UK and the number one alternative to bank overdrafts and bank loans.
Invoice Factoring is not considered a loan as it is a purchase of accounts receivable. The factoring company purchases future receivables (invoices) and provides the business with a percentage value of the invoice upfront. The remaining balance minus a fee is then paid to the business once the invoices have been settled. Rather than a business waiting a significant length of time for an invoice to be paid, Invoice Factoring enables a business to access cash quickly and easily.
How does Invoice Factoring work?
Instead of waiting for all your customers to pay you, by using Invoice Factoring, you are able to receive funds up to the value of 90% of your unpaid sales invoices.
Typically, payments from your customers will go into a bank account controlled by the factoring company, and your customers will be aware that you use factoring. Some factoring providers will give you the option to credit insure particular customers or your entire sales ledger to minimise your exposure to bad debt (this is known as recourse and non-recourse factoring).
Our experienced and professional credit control team will then take the responsibility for securing the payments from your valuable customers. The remaining 10% is then advanced to you upon payment from your customer, less a fee.
Simply put -
1) You provide goods or services to your customers in the normal way.
2) You invoice your customers for those goods or services.
3) You "sell" the raised invoices to a factoring company. The factoring company pays you the bulk of the invoiced amount immediately, typically up to 80-90% of the value, after verifying that the invoices are valid.
What are the benefits of using an Invoice Factoring solution?
The benefits of using an Invoice Factoring solution with Skipton Business Finance are:
- Increased cashflow and access to working capital which leads to an array of financial benefits for your business
- A more consistent cashflow cycle can help businesses meet their weekly payroll obligations, paying for raw materials, upfront fuel costs, paying creditors, HP commitments etc
- Invoice Factoring can be much more flexible than a bank loan or bank overdraft - the facility limit will generally increase as your sales increase
- Every Invoice Factoring client of our has direct access to a Relationship Manager
- Skipton Business Finance is a Skipton Building Society Group company - it's in our culture to care for our clients
- Our costs are completely transparent
- Free credit reports on your clients
- We promise to look at every single applicant in detail
How you could use Invoice Factoring
Here are some examples of how business owners can make use of improved cash flow from invoice factoring:
- Making Payroll in Slower Times
- Staffing and Hiring New Employees
- Investing in Marketing & Advertising
- Paying Rent and Reoccurring Bills
- Collecting Funds Faster For Unpaid Invoices
- Buying More Inventory To Increase Margin
- Buying Materials For Projects
- Buying New Equipment
Caring for our clients
When you become a client of ours you'll be pleased to know that we boast an extremely low client-to-staff ratio meaning that you will have a direct relationship with our experienced Relationship Manager. No automated telephone systems and no annoying voice recognition systems asking you what you want in order to put you through to the right person.
You'll have the landline and mobile number of your dedicated (and may we say, very friendly and super-smart) Relationship Manager as well as direct contact details of an Account Executive and the entire Operation's Support Team.
Imagine phoning up your Invoice Factoring provider and they already know who's calling! When we say that we offer a personal service, we really mean it.
Contact us today
If you need an Invoice Factoring solution and access working capital from as little as £25,000 up to £5m, then look no further than the industry's premier lender.
Backed by Skipton Building Society, the UK's 4th largest building society which has over 800,000 members and 100 branches, it really does mean that we look at the individual merits of a business as part of our underwriting criteria, not just their credit score.
If you would like a no-obligation FREE quote, please get in touch by ringing us on 0800 0854150 (call 0330 1232437 if ringing from a mobile).
You can also email us at firstname.lastname@example.org.
Or why not utilise the handy form on the right and we'll call you back!
Want a specific Invoice Factoring solution?
At Skipton Business Finance, we offer the following Invoice Factoring solutions:
For more information about Invoice Factoring, please download and print off our PDF.
Alternatively, we also offer a range of Invoice Discounting solutions.