Both provide an advance payment against the value of your outstanding sales invoices. Factoring provides a service through the collection of payments from your customers, including the sending out of statements and reminders together with telephone chasing. However, invoice discounting is similar to an overdraft with no credit control or collection service undertaken by the lender. You continue to operate your own sales ledger and administer the receipt of customer payments.

The use of factoring is now recognised by customers and suppliers as a suitable method of meeting cash flow requirements. There is a strong probability that your customers will pay other ‘supplier factored’ invoices anyway. If your customer has any doubts about accepting the sales invoice being assigned to a factor, then speak to your customer to allay any concerns.

  

The typical response from most lenders would be 7-10 working days. Exceptionally, this can be less subject to the lender having all the required information to submit a proposal to the underwriters. However, it would be essential that all pre-commencement conditions of the facility can be quickly satisfied.

 

The majority of the new businesses will be offered a factoring facility either with or without credit insurance. For a facility to be cost-effective for the client and the lender, it would usually require a minimum sale of £50,000 per annum.

Yes – there are no legal or operational issues that would prevent either trading entity from being eligible for a factoring or invoice discounting facility.

 

All sales invoices will be valued differently based on the type of debt and the quality of the customers, acknowledging that all lenders have their own policy. However, the starting point would be an advance of up to 90% of the gross sales invoice value, including VAT, accepting that a facility can always be approved with a lower percentage advance in certain situations.

 

There are two fundamental costs of a facility as detailed below:

Service or commission fee – this is the % amount that is charged against your gross sales invoices for the administration of the agreement.

 

The majority of lenders will usually have a minimum period of between 6 and 12 months. However, this can always be negotiated and there are lenders who will agree alternatives such as no minimum period, free trial period, 3 months, 18 or 24 months.

Directors of limited companies should be prepared to offer unsupported personal guarantees, usually on a specific amount. Additionally, all lenders will register a fixed and floating charge over the company’s assets with priority always being required against the debtors. For sole traders and partnerships, the proprietors will have unlimited liability for any facility.

The standard eligibility period for funding against sales invoices is between 90 and 120 days from invoice date or month end. Exceptionally, invoices can be approved for longer periods should customers have extended payment terms.

 

Yes – sales invoices can be financed, but only to approved territories. Some lenders will insist that export funding is restricted to a lower % of the total sales or that the facility is subject to credit insurance.

 

Invoice finance can be approved for businesses that have a single debtor. However, the facility will be subject to the type of debt being straightforward and the eligibility for credit insurance, dependent on the debtor.

 

After an initial assessment of each proposition, the broker will be able to identify the appropriate lenders who can structure the right facility for your business. Time and resources will not be wasted in inviting lenders who will never deliver to quote for the business.

 

Yes – there are no issues in inviting more than one lender to quote to ensure that a competitive choice of offers is available.

The majority of lenders can offer invoice discounting and factoring inclusive of credit insurance –known as a non-recourse facility. Alternatively, credit insurance can be provided by an external policy through a number of specialist companies. An assignment will be taken over the policy by the lender, who will then fund against the insured customer limits.