Factoring – Frequently Asked Questions
Can I Factor my invoices?
Any business that supplies goods or services to another business on payment terms agreed with the client. All business types including sole traders, partnership as well as Limited Companies.
Can I factor for export sales?
Yes. Export sales factoring, once excluded by most factoring companies is now an important growth area for them.
Why use a broker, when my Bank will Factor my Invoices?
The simple answer is why not? It won't cost you a penny more to use our broker factoring service! What's more we'll help you work out the total cost of any offered invoice finance facility not just the headline rate. As factoring brokers we keep abreast of the latest developments and news, who is tightening criteria and who is not! We also know who is offering great customer service which will help you retain your clients. We always source the best deals for our customers and can always offer an informed choice.
Do I have to Factor all my Invoices or a just a selection?
There is no obligation to factor all your outstanding invoices and there are lenders who will facilitate almost any requirement subject to a minimum amount. You can factor a single invoice. It is worth noting that fewer invoices or fewer customers translates into increased risk for the lender which probably will mean a higher price to pay for your business.
Can I insure the debt?
Yes. Most Factoring companies will offer you the opportunity to insure your debts.
Who provides Factoring?
Factoring is offered by banks, some building societies and specialist asset finance based lenders. All have different policies and service levels, as well as having specialist knowledge of certain industry sectors.The overall cost and service level given to your clients and yourselves are the most important factors in deciding who to partner with. The headline costs quoted by some companies are supplemented by additional extras which come as standard from other funders. So it pays to use our experience rather than have regrets in the months ahead.
How much will it cost?
The costs of Factoring are made up of two elements, the Service Fee and Discount Charge. All Factoring Companies will set a:
- Minimum annual fee which is a fee based on what the factoring company expects to earn over the course of the year estimated on the administration workload and turnover of your business. This fee is entirely dependent on your particular business but is also important in the event that you wish to cancel the agreement in the future. The notice period will be written into your terms and conditions.
- Service fee, which is the charge for administering your account and for credit control. This is usually a percentage of your turnover and varies between 0.5 and 2.5%.
- Discount charge, which is the factoring company's equivalent to interest usually between 1% and 3% over base, calculated daily on the outstanding balance.
How quickly can a facility be put in place?
Once the information required is to hand it typically takes 7 – 10 working days to get a facility in place.
What Security do I have to give?
The level of security required will depend on whether the business is a limited company, sole trader or partnership. Typically Factoring companies take a fixed charge over the company's book debts (invoices).
Can brand new businesses factor their invoices?
Yes. Factors will consider new businesses.
How much cash will be released by factoring my Invoices?
As each facility is tailored to your business own needs this will vary, but typically Factoring raises anything up to 90% of the invoice value. In certain circumstances higher percentages up to 100% can be raised.
When will I receive the funds from the Factoring Company?
Typically funds can be made available to you within 24 hours of an invoice being received by the Factoring Company.
Do my clients have to know I am Factoring?
No. Confidential Invoice Discounting (CID) or Confidential Factoring (CF) means that your client need not be aware. For companies with strong credit control procedures and a track record of collection, CID allows you to retain complete control over the credit control facility while CF leaves control of collections with the invoice finance company but all communication with your client is carried out in your company name.
What happens if my client does not pay?
All Factoring companies provide information on the credit control status. If there is a problem collecting an outstanding payment you will be notified with a recommended course of action?
I have one major customer who accounts for over 50% of my sales, can still Factor?
Yes, depending on the client and your business. Each Factoring company has their own "Concentration Risk" policy, some of our clients have over 60% of their business with a single client, they factor their invoices, and the Factoring Company are comfortable with the risk.
