Traditional banking is picking up the pieces from the 2008 crisis and in 2015 it showed it’s first signs of improvement with banks promising to try and make amends to small businesses, who they have refused time and time again to provide adequate funding for.
Statistics however show that 29% of the businesses who have applied for funding did not actually get the full amount they applied for and needed, AND, some have been forced to borrow from multiple lenders to make the numbers right. Even worse was the fact that 21% of all applicants got absolutely nothing.
In a sea of 5.4 million business establishments, 216 000 could not get their hands on ANY finance.
IS THIS YOU ? Factoring Can Help !
Check out the infographic below to find out how factoring finance can super charge your small business’s working capital and put you back on track !
What is factoring and how does it work
Factoring is a type of finance where you can use your unpaid invoices to quickly access cash for your business operations. As you carry out your normal business operations invoices are generated for your customers. These invoices are not normally paid instantly and sometimes it can take up to 90 days before any payment is received. This can be very harmful to smaller businesses which rely on every pound to continue their work processes.
With factoring, you can effectively sell these unpaid invoices to a factoring company receiving the bulk of the invoice values immediately with the rest after the customer has paid his account in full. Typically, a factoring company will transfer you 70-95% of each invoice value within 48 hours. The balance will be held in reserve until such time as the factoring company has collected the payment from your customer. When they secure the payment, the finance provider will deduct their fees + any interest accumulated and the rest will be transferred into your account.
How factoring works step by step:
- The business (you) provides B2B products or services. Invoices are created as the work is complete / products delivered.
- The customer may take up to 60 – 90 days, which may create cash flow gaps that are hard to compensate for.
- The business uploads the invoice details to the factoring company’s sales ledger.
- 70-95% of the invoice value is transferred to the business within 48 hours.
- The balance is held until the customer pays the factoring company.
- Fees including interest are deducted and the balance is transferred to the business.
- The cycle is complete.
Note: To use factoring, you must be operating in the B2B sphere, or at least have B2B invoices to factor.
What are the benefits of factoring
Access to cash on hand
Factoring can unlock the bulk of your unpaid invoices. The immediate receipt of 70-95% of invoice values (including Vat) can fill the gap left by slow paying customers and can make all the difference when you need to continue paying for production, staff, building and business expenses.
Unlike traditional banking finance, factoring should be unlimited in it’s scale as the amount of funding available should automatically increase in line with increasing sales. The more you sell, the more invoices you have, the more funds you can access fast and effortlessly.
Incredibly quick processing
Unlike any other finance, where you have to wait for weeks to get approval and then even more time before money is transferred into your account, factoring works with the speed of light. The entire arrangement with your factoring company can be very quick to set up. Once in operation every invoice should have no more than 24 to 48 hours of processing time and money before will be made available to spend.
Reduced risk and great availability
Another benefit of factoring is that it does not take into account your credit score or credit history. Since it’s not your business which owes the money, but your customer’s, factoring companies can completely disregard your credit history and solely focus on your customer’s credit history. Banks on the other hand are not so generous. Often small businesses who are struggling to make ends meet or new start-ups can get into cash flow problems for a while as banks are often unwilling to fund you unlike factoring companies that are often happy to fund start ups.
Managed sales ledger
You hate chasing customers for money ? You don’t have to. With factoring, it’s the company that finances you who take on that role. Factoring companies have dedicated sales ledger teams who do this all day, while you do what you do best – business.
What are factoring brokers and why do you need them
Factoring brokers make the connection between you and your factoring company. For businesses who are new to this type of finance, or finance at all, it is hugely advantageous to contact a broker and have them setup your first factoring deal. There are many companies out there offering factoring finance, but not all of them will be the best fit for your business as some have poor service levels and others prefer certain industries.
A good factoring broker will know the factoring market well and will know which companies offer the best service levels at the most competitive prices. The broker will get to know your business and niche, your exact financial situation and will do extensive research to highlight which factoring company can provide everything you need at the smallest cost. They can setup negotiations and even leverage their industry connections to get you better deals and discounts that are impossible to achieve on your own.
Better yet, SOME CAN DO IT FOR FREE !
Factoring Solutions is an independent factoring broker, who works for FREE with businesses to help them get the right factoring deal. For an informal, friendly chat with an expert, please contact Factoring Solutions now on 01827 707680.
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