Should You Use Invoice Factoring for Cash Flow?
This week’s guest blog comes from Shaun Thomas of Simply Factoring Brokers. I first interacted with Shaun when he booked onto my workshop at TBNS 2016 in September. Unfortunately a family situation meant he couldn’t attend the workshop, however we’ve had many subsequent conversations so I asked him to write a series of guest blogs for me. Here’s his first one.
Invoice factoring is a way of releasing capital from your sales ledger.
Your company effectively passes its outstanding invoices to a funder, who then advances your business up to 90% of the invoice value
The money is available to you within 24 hours of you raising the invoice, ensuring you have access to your cash soon after raising your invoice. This form of finance helps many companies free up capital that rests within unpaid debts. Added bad debt protection, means the risk of your customer failing to make payment transfers to the financing company or bad debt underwriter.
What Happens with the Rest of My Invoice?
The finance company will take control of collecting payments from your customers.
They will manage credit control and will do all the chasing for the full value of your invoice. When the funder receives full payment, the financing company will release the remaining value of your invoice to you, minus the agreed fees.
Funders tailor fees around your business needs and the value of your invoices and the creditworthiness of your debtors. By accessing finance this way, you never borrow more than you can afford and there is no need for a perfect credit score. For this reason, invoice factoring is an appealing solution to businesses with bad credit history and little finance options, but remarkably, it is a very low-cost option.
What are the Downsides to Invoice Factoring?
For some, it may show signs that your company is struggling to chase its own debts. This is not true in many cases. The use of a factoring company is an efficient way of managing credit control. By letting a third party chase your invoices, you have more time to concentrate on winning new business and concentrating on growth.
Some business owners also do not like the aspect of handing over credit control to a third party. Companies can take months, even years, to build a solid working relationship with a customer. Relaxed and familiar credit control environments can nurture those relationships, but as Rachael says in one of her blogs on Simply Factoring’s site, credit control is a part of good customer service.
Hiring an accounts receivable team is an operating cost that you no longer need when you factor your invoices. If you are not comfortable with a third party collecting your invoices, there is a white-label option called confidential factoring or you could try invoice discounting.
What’s Invoice Discounting?
This method of accessing finance is the same as factoring, except you remain in charge of credit control. You use your own accounts receivable department and processes to chase payment, even after your funder has released payment. Using this method, you can access your cash instantly but maintain the working relationships you have established with your customers.
Invoice factoring is an excellent solution if you need regular cash flow. If you need more information on how it can help you, check out SimplyFactoringBrokers.co.uk
I’m a seasoned marketing professional with a history of success in the
tech and finance industry. I have worked with Simply Factoring Brokers
since early 2016 and we have grown considerably during that time. Simply
Factoring are one of the largest commercial finance brokers in the UK
securing more finance for small and medium sized businesses than any other
factoring brokerage. I’m always happy to connect with anyone who has a keen
business interest or would just like to chat about their business’