Invoice Factoring

The purpose of invoice factoring is to help businesses receive money owed in outstanding client or customer invoices upfront. It helps to eliminate lengthy payment terms and remove the stress and worry that late and overdue invoices can cause. It is primarily a cash flow solution that provides companies with greater stability.

Invoice finance facilities offer huge benefits to company cash flow. By immediately releasing money tied up in outstanding invoices, factoring helps to combat short term cash flow issues. It frees up working capital and enables businesses to take on more work without being held back by periods of low cash flow.

Instead of having to wait 30 - 90 days for payment terms to lapse, businesses can receive money owed in 24 hours. This can make a huge difference when you consider how much of an impact 3 months can have on a company’s success.

As well as benefiting cash flow by releasing money tied up in a company’s accounts receivable, invoice factoring offers businesses other major advantages.

1. Get financial flexibility: Whether you want to sell your invoices every now and then on an ad-hoc basis, or sign up for a long-term commitment to sell your sales ledger, invoice factoring can help.

2. Save time and business resources: Your credit control is managed by the factoring provider, which means you don’t have to worry about collecting invoice payment reminders or collection.

3. Improve relationships with customers: Many businesses find that invoice factoring strengthens their relationships with clients. The transition is smooth, and it leaves you to focus on your providing the best service possible.

4. A funding solution with high approval rates: With invoice factoring, company credit score is not the main determiner or approval. You are advancing cash that is already owed to your business, which makes it easier to apply for.

5. No additional assets required as collateral: Lots of business loan products require companies to provide collateral. More often than not, startups and small businesses don’t have the luxury of being able to risk these assets, which is why invoice factoring is popular with UK SMEs.

No, invoice factoring is not currently regulated in the UK. It’s important to understand that no asset based finance is regulated by the leading Financial Conduct Authority, which is why choosing a legitimate factoring provider is so important.

Though similar, the main difference between factoring and invoice discounting is the way that client payments are collected. With invoice factoring, the invoices are sold and the provider takes control of the sales ledger and responsibility to collect debts.

Invoice discounting on the other hand, lets businesses retain credit control.

Debt factoring is another term for invoice factoring. Debt factoring allows businesses to raise cash by selling their 'accounts receivables', in other words, their unpaid invoice debts, to a third-party provider.

When a business agrees to this arrangement, the debt factoring company takes over responsibility for credit control management and client communications.

Yes, you can! With single invoice finance, a selective factoring facility allows you to release funding against a single invoice or debtor when you need to. Also referred to as spot factoring, this invoice solution is flexible and can be used without signing up for lengthy contracts.

Yes, you can. Unlike traditional loans, lenders will look at your clients' creditworthiness, not your business credit history. This is because your business is receiving an advance on cash that is already owed. So even if you have bad credit, you could be eligible for invoice factoring.

In the event your client fails to make payment or goes bankrupt, the party liable depends on the type of agreement signed within the invoice factoring terms of contract.

Put simply, one of two things could happen. Under a recourse factoring agreement your company would have to pay back the money owed, but under a non-recourse factoring agreement, the factoring company would absorb the debt.

Both of these terms refer to liability in the event of non-payment from a business’s clients or customers. There is one fundamental difference between recourse and non-recourse invoice factoring - and it’s an important one to be aware of:

Recourse Factoring - This type of factoring agreement means that your business will be liable to pay back the invoice value should your customer fail to pay the lender.

Non-recourse Factoring - This agreement usually includes a type of bad debt protection that mitigates the risk of non-payment by your customers. It means that your business will not be liable to pay the invoice value if your customer fails to pay.

CHOCCs (Customer Handles Own Credit Control) is also known as CHOCs (Customer Handles Own Collections), and it works the same way as an invoice factoring facility, but you handle credit control.

It can be described as a blend between factoring and discounting. With a factoring facility, the provider will manage credit control on your behalf, and any customer invoice payments are made directly to the provider. CHOCCs lets you manage and chase your customers, but invoice payments are still made direct to the factoring provider rather than you.

CHOCCs has many benefits, including the ability to maintain relationships. It is also a great option for young businesses that may not qualify for invoice discounting.

By using an invoice factoring broker like SME Invoice Finance, we can help save you time by matching your business to a range of suitable invoice factoring companies. Instead of having to research a wide variety of providers, our service can direct you to the perfect solution for your business’s needs.