A Guide To Debt Factoring

Debt factoring is a finance method to release up to 95% of your invoice value immediately to boost your cash flow whilst letting a finance company collect the debt incurred.

Factoring is not for everyone because it is not you who is talking to your own customers and some factoring companies may chase the debt down more aggressively that you wish for.

What is factoring ?

Essentially businesses sell on their invoices to a third party debt collection agency who will collect your sales invoices on your behalf. Most companies use factoring to improve cash flow but it also releases the administrative burdon of managing a sales ledger department and the nightmare of larger companies not settling their invoices in time.

There are many specialist companies offering this service including most major banks who have a subsidary company. Factoring is a long term commitment so your should check all agreements from several companies before signing.

However, you are likely to receive 85%-95% of the invoice value within 24 hours of handing over the debt. Your customer then pays the factoring agency and the agency passes over the balance to you less their fees and any interest applicable.

Using Factoring Brokers and Services

Like purchasing insurance or mortgages, there are specialist brokers in the UK who will find the right solution for your business. This means they can use their years of expertise to find the right factoring company that is right for your circumstances.

You'll need to ask a lot of questions. Most will be around how quickly you receive cash, what percentage you get up front, how they collect the debt and what fees and interest they keep from the ultimate settlement figures.

You also need to be happy with the person you are dealing with and how long your contract will last and what period of notice is required if you want to terminate your agreement.

The material contained in this publication is intended for use as a guide and for general information only. It is not intended to be a substitute for independent professional advice.

Seek professional advice before proceeding with your debt factoring requirements.

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