Factoring Companies and How they Work Magic

Maybe you have heard about Factoring or maybe you haven’t. Either way, you better read up and get to know more about it. Who knows, it might just be the solution that you have been looking for to better your company’s operations. Okay, so let’s get started and discover how Invoice Factoring companies work their magic to help businesses, small and big alike.

But first, what is factoring? It is a kind of receivables financing method apart from discounting that seeks to derive funds from the company’s receivables and customer invoices by hastening their collection. Now who wouldn’t want that?

invoice finance londonA company in its usual operations and trade sells its products and/or services either in cash or in credit. In the latter, this is referred to as trade receivables and is contained in the customer invoices. There is a sale but the receipt of cash isn’t always spot on. When sales are on credit it can take for weeks to months before full collection is attained. In some cases, the owing clients even default in payment, others late while others not at all. But the company may have the need to get hold of the cash locked up in such invoices for several reasons. This is where factoring steps in.

The business sells its customer invoices, a corporate asset, to a financial institution often referred to as a factoring company or simply a factor. The factor in turn gives the selling company an advance which is equivalent to a major percentage of the value of the sold invoices. This can be for as high as eighty to ninety five percent in value.

Another perk of such financing method is that the business is freed up and relieved of the collection process as the factoring company takes charge and holds the responsibility of collecting from the owing clients. Upon complete collection, the factor will give the company the remaining balance of the value of the invoices less the discounts and fees that both parties have agreed upon at the onset. In essence, factoring involves the sale of the customer invoices and the right to collect against them.

The services of factoring companies can be divided into two: bulk or single invoice. In the former, the company sells off all of its invoices and pays a monthly fee. The latter on the other hand is more of a one-time transaction only but should a company wish to use it again then they can do so and the fees involved are only attributed to the invoice at hand.

What You Should Know About Invoice Finance UK

No company can continue operations much less set up with the absence of enough resources. Cash is an asset that keeps any business running and without it we all know where they would end up. In fact money is a universal means of trade for gone are the days of barter although some transactions still resemble it such as exchange deals. However, money is the major means by which business owners acquire resources such as labor, land, buildings and raw materials. Unfortunately, cash is not easy to acquire. There are many methods by which business owners choose to raise their needed resources. Invoice finance in the UK for example is one main method which has also been gaining ground in other parts of the world.

Factoring Vs Accounts ReceivableInvoice financing draws its resources by allowing companies to advance the value of their customer invoices even before actual payment has been rendered by an owing customer. This allows them to improve their cash flows, hasten up receivables and avoid bad debts without having to get a loan and increase their liabilities. Other benefits of it include:

  1. It is a quick way to derive cash and can be made available within a day or two.
  2. It does not require you to present proof of financial capacity to pay as it is your customer’s capability that is required by the financing institution.
  3. It allows for a quick injection of cash in the working capital as it can make non-current assets available for current use.
  4. It does not reflect as a liability in the financial statements.

Invoice financing comes in two forms namely factoring and discounting. These two are found to have similar benefits but differ slightly in their procedures.

FACTORING refers to the sale of the said invoices to a financing institution often called a factor. It is basically the sale of an asset, In this arrangement the company agrees to get an initial eighty to ninety five percent of the value of their receivables from the factor while waiting to get the remaining balance less any fees only after collection from customers have been completed by the factor.

DISCOUNTING on the other hand uses the said invoices as a form of collateral. Here, the company gets the full value of the receivables in advance and proceeds to collect the payment from its customers. Once this is established, the company then reimburses the financing firm of the amount plus any fees or expenses that the latter has acquired.

What is export finance?

Export Finance is designed to be used by Small and Medium Enterprises venturing out in to the foreign trade industry but it can also be used to help out rising business who might need the extra money to start to export but have budget constraints because of delayed customer payments or restrictive dealer payment conditions.

How does it work?

export overdraft for business1. First the client will apply for credit for their international client.

2. The export overdraft facility identifies a correspondent factor through our worldwide network in the factoring industry. They then get a credit limit to pay for the necessary transaction.

3. The moment credit score agreement have been obtained, the products may be sent and invoiced within exactly the same way when they would when they ended up being sent to the UK. This specific reduces the risk for the issues connected with rearing and showing characters associated with credit score and marrying these to payments associated with lading and inspection vouchers etc.

4. Within the assistance, overdraft facility liaison can provide the assignment notice for the invoice the client’s own dialect as well as compliant with their country’s lawful jurisdiction.

5. When the products have been delivered, a delivery receipt must be provided and filed with the facility.

6. Depending on the service levels needed, your Correspondent factor may perform task along with verification tests with the client.

7. The drawing of funds is identical with domestic invoice factoring.

8. Depending on the package you apply for, the correspondent can also collect debt from the international customer, again in their own language and law.

9. As with above, the liaison can also receive payment in the customer’s currency.

10. When the payment is settled, the remaining balance of the invoice will be credited back to the client minus the agreed transaction fee.

Now that you know what export finance is, it might just be what you need to help you start exporting.

Selective Invoice Factoring and Who Uses It

Selective invoice factoring, also referred to as spot, is a type to receivables financing where businesses get to advance a major percentage of the value of their sales invoice from a third party financing agent. It comes alongside other business financing types such as loans, equity financing, asset based lending, purchase order finance and merchant cash advance. What separates single invoice factoring is its characteristic where it allows companies to raise capital without any debt involved. Plus, it is to be noted that only one invoice of your choice will be subjected whenever you want to. Now you wonder. Who uses it then?

brokeUP AND COMING BUSINESSES: Most businesses in every industry that has recently started or are still building on their organization often find a hard time raising their needed funds during their first years. The reason is because they have not acquired as much assets yet which are requisite collateral for banks and other lenders. As an option, they are given the chance to do so but instead of borrowing they sell their invoices instead thereby hastening the recognition of cash which they may use to pay suppliers etcetera.

THOSE IN NEED OF CASH: There are a lot of established companies who despite of outstanding sales do not have enough cash. How come? Customers do not always pay in cash. In some instances, they pay on credit therefore cash is locked up. Selective invoice factoring is a good answer to this dilemma.

ENTITIES WITH LONG RECEIVABLES: To hasten up a certain receivable which could be large in amount and whose value can provide for a present need, companies who have long receivables make use of it too.

THOSE WHO WANT TO AVOID DEBT: Not all receivables are paid on time. Others do not even get paid at all and thus bad debts. These are inevitable and cannot be avoided unless you do not offer credit. By using a nonrecourse type of factor, you shift such risks and losses to the financing agent.

COMPANIES WITH EMERGENCY EXPENDITURES: Lastly, selective invoice factoring can also be used by companies who have urgent expenses. These can be anything from buying new equipment, repair of a major machinery used for production, cash shortage to provide for employee salaries and wages and practically any other operating expenditure. You never know when you have to disburse an amount vital for the continuation of operations.

Single invoice finance Tips From Factoring Companies

We all know very well that trying to borrow from factoring companies and succeeding is not an easy task. But then again, you go through it anyway as projects and plans need funding. Plus, the sad fact daunts us that cash cannot be readily available at all times. They can be tied up in various places, receivables and invoices being two of them.

Two of the many institutions which can provide you with your needed resources are banks and factoring companies. Money is very hard to earn and very easy to spend. Again, that’s another sad fact but we all have to deal with it. We must work our way around it and plan our actions carefully so as to make the right decisions. Also, there are cases when we need funds but do not have any at hand. Banks can provide you with loans but these loans have to be approved first. Meanwhile factoring can provide you the cash provided you give them your invoice in return.

You’ve probably known by now that there are tons and tons (if not a gazillion) number of rejected loan applications. So how do you succeed in getting your application stamped with an approval? Here are some useful tips to help you.

  • business lending moneyAs always, do your research. It would be a very good idea to make a thorough research about your possible options to fund your needs as well as the available institutions from whom you are getting these funds from. Take this for example. There are banks that cater only to loans applied for by companies in a particular industry or sector. At the same time not all banks can provide for every loan applied for. Let’s say real estate.  The amounts needed here can be high as we all know that properties are in no way cheap. Not all banks will say yes to loans that are in huge quantities.
  • Look at yourself. Do you have a good credit score at the present? Are you paying your dues right and on time? If your answer to both questions is a resounding yes then you’re a step ahead, otherwise don’t expect any bank to approve your loan.
  • Express your needs and payment plan preferences. It is important that you communicate well what your needs and expectations are as well as your planned mode or type of payment. It is true that your financial status and ability to pay will be highly questioned and looked into but having a good grade on those two won’t simply cut it. Business lending institutions will want to secure your invoice so they can make sure to get paid from your single invoice finance loan. In the first place, they won’t lend you if they get the idea that you won’t pay them right, on time and within the terms agreed upon.

 

Spot Factoring: What is it?

These two words may sound a little foreign to most people but definitely not to businesses. Single invoice or spot factoring is the strategic process of raising financial resources against individual invoices. Here, cash is released which are still locked up. It is a business financing solution which enables a business to receive cash in advance on a single outstanding invoice. Companies involved in this provide their clients their needed resources by financing client invoices as they are generated and as they are needed.

business lending 01There are some companies which are hesitant about factoring as they are afraid of getting tied up in lengthy contracts and on going commitments which in the long run can be fatal to them. Here the beauty of spot factoring comes in. It is a one time basis and unlike other factoring contracts, they won’t hold you down for far much longer than you would want to.

When looking for spot factoring companies there are three essential elements for you to consider and to study about. The first two are the size and amount of your invoice while the third is about customer impact.

These said companies will check upon your invoice, confirm that your products or services have indeed been delivered or rendered and then underwrites the credit worthiness of the debtor. When these are accomplished, they will advance a percentage of the invoice to the business which will depend upon the agreed proportion. The balance will then be released when the invoice has been fully paid.

Companies use this for several different purposes like unexpected expenses, the need to fund an important and urgent project, for extra income, a boost in employee morale, opportunities for growth and a better chance at reaching out and influencing the general community. Do know that those are only a few of the many things companies encounter that make them need spot factoring.

Whenever businesses urgently need financial resources for whatever reason and cash is not readily available, they would often reach out to banks or lending institutions where they acquire debt. This has been a common practice but is often frowned upon as a heavily indebted company is in very risky waters. When credit risk is so high, investors can get skeptical and scared that they might withdraw. So most companies would then turn to spot factoring. It does not incur them any debt and at the sane time it provides them with the resources they need.

Commercial Business Loans and How to Get One

Every business needs financial resources in order for it to operate. The thing is cash is not always readily available. Sometimes they are even tied up in receivables such as customer invoices. One of the options that businesses have and which many often practice is the getting of commercial business loans. This is a type of a debt based funding arrangement that businesses can set up with spot factoring companies. Most companies use these loans in order to provide for large capital expenditures and operations which they could not afford otherwise but should be provided for as they will either provide for growth or whose absence may prove fatal for the company. These are usually for a short term basis and may be secured by collateral or not.

commercial business loansWhat people often misconstrue is that commercial business loans are only available to large, well established and decades old companies. Do know that they are not. The only thing is most large and well established companies have done quite a number of things that newly opened companies have not yet done or are still starting to do. So whether you are an already established company, one who is still learning the ropes or a newly born one, here are some tips on how to get yourself a commercial business loan.

First, organize all your documents together. See to it that your documents especially those pertaining to your finances have been kept secured and organized. Financial institutions or spot factoring companies will look at your credit history. Do you pay your liabilities on time or do you always go beyond deadlines? Your credit score is something that you should keep an eye out as it will tell so much about your company. Furthermore, if lenders find it hard to look for and understand documents pertaining to this, it can pass you out as a company who is terribly unorganized. That is a total turn off.

Second, market your company as well. It is not enough that you express your desire to get a loan. It is also important that you communicate your company’s story, its history, what it does its processes, its people and its goals. It would also be good if you bring up a little about how you plan to use the resources. You don’t have to give them a detailed plan about it. Ideas and plans will suffice.

Third, study the financial institutions from which you’ll borrow your needed resources. It is also important that you know quite a lot about the institution you’re borrowing from. This will actually help you prepare for the needed documentations and various other related requirements they would need for them to grant you your needed commercial business loans.

Single Invoice Discounting

Also known as selective invoice, spot invoice or one off invoice discounting, single invoice discounting is a form of short term borrowing that is often used to improve a company’s cash flows or increase working capital. It allows an entity to draw money against sales invoices even before its customers have actually paid what they are due. In here, a company loans a certain percentage of the value of its invoice from a third party or financing institution. Do take note that single invoice discounting is not the same as single invoice factoring. The former uses the invoice as collateral to borrow money while the latter involves selling of the receivables. Although their effects and purposes may be somewhat similar, these two are completely different and should not be interchanged.

single invoice discountingThis type of financing is best suited for companies with seasonal trading patterns, those who trade with just a single customer and also those who prefer or need to finance against a single customer only.

It is also fairly cheaper as compared to traditional discounting as no monthly fees are involved. They too are much lower as there are no annual administration fees and only one fee per invoice transacted is charged. At the same time, this transaction can be made confidential so that your clients and customers as well as suppliers will remain unaware that you are borrowing resources against the invoices even before they have been paid. The funds that you acquire here will not only increase working capital and cash flows but it will also make up for the lack of resources needed for very important projects and related expenditures. Also, it is possible for you to get hold of the cash in less than forty eight hours. And since this only deal with a single invoice, no lengthy contracts are involved so companies would not be tied up in these contracts for far longer than they plan to.

As there are advantages, there too are drawbacks in single invoice discounting. For one, it can mean a reduction in your profit margin. Also when compared to overdrafts and bank loans, they can be more costly. Second, borrowings can be associated with entities that are in financial distress. Since you are borrowing and using your invoices as collateral, others may perceive it as a sign that you are encountering problems. Ultimately, suppliers may be hesitant to extend credit to you too. Third, companies who enjoy the increase in working capital may become too dependent. This should not be the case as you must remember that you are still borrowing and interests have to be paid.

UK Factoring Companies: What Services Do They Offer?

Factoring is known to provide an answer to companies who have slow paying customers and those who need a boost in their working capital. Others even see it as a means to protect themselves against noncollectable accounts and losses from bad debts. At present there are notable UK factoring companies like workingcapitalpartners.co.uk who provide their services to the market. They offer many different services and types of factoring. These variations occur as different companies may provide for different rates, terms and conditions. Rest assured these are always communicated to their clients as transparency is one thing that keeps this business growing.

factoring companiesFirst and foremost let us describe the process. The owner of the receivables or invoice sells these to a factor who in turn gives a percentage of the value in advance. The factor will chase after and collect the payments from the customers and once the whole amount has been fully collected, the balance left of the invoice’s value will then be given by the factor to the seller. This will then be less any fees or commission which both parties have agreed upon. So what services do these UK factoring companies offer? Here’s a little info for all of you.

For one, there is this thing we call Recourse. Here credit protection is not part of the agreement. In here you are responsible for buying back the invoices which have not been paid by your customers within the agreed upon period. Even if the factor has purchased the invoices from you and given you a percentage in advance of their values, you assume the risk of uncollectability. Fear not though as factors help you out to avoid having these buy backs. As part of their services they will check up on your accounts and customers to see their ability to pay. Also they can take care of managing your receivables alongside your own in house team.

If however you do not want to assume any risk of uncollected amounts you may opt for Non Recourse. They will completely assume the risk and thus relieve you from any bad debts.

There is also what we call the Modified Recourse where the factor carries receivable insurance for amounts uncollected due to inability to pay for financial reason. For other causes other than that the company must buy back the invoices.

In the event that you don’t want to subject all your receivables to a factor but would prefer a one time transaction, UK factoring companies may provide you with spot or selective factoring. This will allow you to choose which receivable to use and when to use it.