Invoice Discounting and Factoring Advisory Service
Much quicker and carrying less risk than a bank or third party loan, factoring has grown into an extremely popular way to obtain working capital funding. The business sells their outstanding sales invoices to a factoring company in exchange for immediate funds. These funds usually take a maximum of 24 hours to be received, outstripping the speed of receipt of a bank loan by far.
The business can receive anywhere from 60 to 98 percent of the value of the sales invoices in the form of immediate funds with the remainder being received when the customer has paid his account.
Factoring is popular because it provides the business with money quickly, comes from money that the business technically has, and additionally the factoring company pursues overdue invoices on the company’s behalf.
A difficulty can arise because there are so many factoring and invoice discounting companies out there that finding the right one can soon become overwhelming. We can help and we explain how a factoring advisor can help a business navigate this cluttered and sometimes confusing field.
Each Business is Unique
Whilst factoring is a great finance solution for businesses in many different markets and sectors, it is not the situation that one size fits all as the offerings from each factoring company will be different even if that may not be apparent on the surface.
Funding solutions depend on a wide variety of individual factors. Every business has its own challenges and unique situation. One business’s factoring solution is often not the most suitable for another.
This is why it is important for any business considering factoring as a funding solution to seek advice from a factoring expert.
A specialist factoring broker can examine the needs of a business in-depth, looking at specific problem areas and advising the best way to raise cash. There are many different forms of factoring, such as: recourse factoring, invoice discounting, bulk factoring, and many more besides. A factoring advisor can help the business find which solution is right for the business in terms of their assets and their needs:-
- No two businesses are the same, and neither are their factoring solutions.
- There are multiple kinds of factoring solution, each with different fees and rates.
- A factoring advisor can help a business look at their assets and needs, coming up with a tailored solution.
Like any form of financing, factoring comes with a range of different fees, with rates depending on the type of factoring arrangement and other factors to do with the business.
As well as taking into account the size and number of invoices the business will be using to generate funding, a factoring provider will take into account other elements such as the size of the business.
A good factoring broker can help guide the business through the various fees and charges, what they mean and how much they will set the business back. A few of the most important are:
- Commitment/Arrangement Fee: Different firms have different policies surrounding asking for commitment or arrangement fees.Some firms might ask for an arrangement fee, usually non-fundable and the first thing the business will pay to arrange the factoring facility with a firm. Usually refunded, a commitment fee is different from an arrangement fee and is more of a good faith payment to ensure that the business seeking finance is serious. It is basically a down payment or insurance. Most firms reimburse a commitment fee, but not all. That is why it pays to have a factoring consultant asking how much the fee will be and whether it is permanent or refundable.
- Discount Charges: Although going by a different name, a discount charge is essentially the same as the interest that a bank would charge on a loan. Most factoring lenders base these charges on the funds allocated at the time, rather than a flat fee. This makes the amount as accurate and fair for the business as possible. Some firms charge 1.5 percent over bank base rate, whilst some charge up to 3 percent. This difference, depending on the sum and length of lending could mean a fair amount of money. A factoring consultant can help find and negotiate the best fees for a business, rather than settling for the prescribed rates.
- Factoring Commission: Aside from discount charges, the main fees from a factoring company come from their management fees.These are the amounts that the firm charges the business for taking control of their invoices. This includes costs incurred in the management, collection and administration of the business’s invoices. This is essentially the fee that the business pays for handing off responsibility of collecting their outstanding invoices. Factoring commission rates can vary from 0.5% of turnover up to 3.75%. Bigger businesses tend to receive lower rates as their facilities will be generating higher incomes for the factoring companies. Smaller businesses have to pay higher fees because the factoring firm has to do a lot of work for less return. A factoring advisor can help find the best fees around and negotiate the right middleground that is right for the business and the lender. Without an advisor, a business could find itself paying much more than they originally envisioned.
The Role of the Advisor
The role of the advisor is to ensure that the business gets the maximum return on their outlay – in this case their invoices, whilst protecting them from present or future ramifications.
- Any businessperson – experienced or not, can fall prey to complicated financial language.
- A factoring advisor helps the business get the best return on their factoring deal, whilst protecting the business long-term.
- A factoring broker should be able to negotiate better rates for the business than if they had gone directly to the factoring company due to the volume of business that they introduce to the factors
- Factoring companies have been known to lavish extra care on the service levels provided to companies introduced to them by leading specialist factoring brokers in order to ensure that they continue to introduce them to new clients in a highly competitive market