Factoring is an invoice finance iteration that allows a business to borrow money utilising their outstanding invoices (debtors) as collateral. A business can typically borrow up to 90% of their outstanding invoices as a way of funding their working capital cycle and allowing them to grow more quickly.
With factoring, the main difference over other forms of invoice finance are:
Disclosed
With factoring, the client’s customer is aware that the lender is involved. This can have significant benefits as it allows the business owner to pay “good cop” with its customer and can blame the factoring company for undertaking credit control.
Lender heavier touch
The lender here will undertake more of the work. They will maintain a full sales ledger in the background and undertake credit control. This means the business can focus on what they do best, such as sales and providing the product or service, and an expert at the back office can do this on the business’s behalf.
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Factoring can be used by all sizes of businesses, from brand new start-ups to small lifestyle businesses and large corporations. The fact that lenders do more of the admin work means it is well suited to smaller businesses without the necessary infrastructure for credit control and administration.
Because the collateral of the facility is the debtor book, there is a much smaller reliance on personal guarantees. We would expect PGs to be set at approximately 10% of the facility limit as opposed to 100% in many other cases.
Invoice finance is a product that facilitates growth. As a business grows, their debtors increase and so an invoice facility provides more working capital – it’s the perfect facility to support a fast-growing business.
A key risk to any business that trades on credit terms is the insolvency risk of the debtor. Invoice Finance can provide bad debt protection which safeguards a business from its customers going into liquidation, owing them money.
With access to over 150 lenders, we can help make your plans a reality.
The business needed working capital so they could make repairs to a van and begin a new and exciting project.
Following a change in banking facilities, the new provider could not assist to the required levels. Sedulo Funding Solutions structured a bespoke working capital solution for them.
The business required working capital to facilitate a large contract.
We’ve put together a list of common Business Loan FAQs. If there’s something you want to know and you can’t find the answer here, get in touch with our team of finance experts.
Once set up, factoring allows businesses to access funds quickly, often within 24 to 48 hours of submitting an invoice to the factor. This speed makes it an effective solution for businesses needing immediate working capital.
Factoring costs typically include a discount rate (interest on the advanced amount) and a service fee for managing credit control and collections. The exact cost depends on factors like the value of the invoices, the creditworthiness of your customers, and the volume of invoices factored.
The main difference is in the management of credit control and collections. In factoring, the finance provider takes over credit control and collects payments directly from customers, whereas in invoice discounting, the business retains control over its sales ledger and collections. Factoring is often more suitable for businesses that prefer to outsource credit control, while invoice discounting suits those who want to maintain customer relationships.
Whether you’re looking to obtain funding to take on the next stage of business growth or access working capital to cover costs, it’s important to have a team of experts on your side.
Our experienced funding team operates out of each city centre office in Manchester, Leeds, Liverpool, London and Birmingham. We’re available to meet face-to-face so that we can better understand your business and talk you through your funding options, or we can assist over the phone – whichever you’d prefer!
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