How does Factoring/Invoice Finance work?
The concept is straightforward. Instead of having to wait weeks for your invoices to be paid by your customers, the invoice finance company (lender) will advance you most of the VAT inclusive value immediately, should you request it. That means you have access to the money from completed work immediately, so you can focus on running your business.
Features of Factoring
- The lender will provide credit control services to keep your customers paying on time by sending regular statements of account, reminder letters and telephone calls as appropriate.
- Outsourcing the credit control allows you to focus more on your business and not having to chase late-paying customers.
- The lender handles collecting payment from your customers, so your customers will know you’re using a factoring provider.
- The lender can provide credit checks on existing and potential customers.
- Well suited to small or early-stage companies.
Benefits of Factoring
- Factoring bridges the cash flow gap between paying suppliers and getting paid
- Credit control expertise helps to reduce in-house overheads and improve collection times
- More flexible than overdrafts and bank loans, as funding grows in line with sales ledger
- Credit protection can safeguard against debtor insolvency or protracted default
- Improved cash position can help you secure supplier discounts