Jan
28
Cashflow can make or break a business, particularly a newly established one. Without sufficient capital on hand to cover expenses, businesses face the need to acquire short-term loans until operating costs can be recouped form invoice payments. Many companies, finding loans progressively more difficult to obtain, are relying on financial service companies such as Touch financial to advise them on alternative ways to overcome their cashflow problems. One of the most popular solutions is invoice finance.
Invoice finance is a method of ensuring steady cashflow by employing the likes of Touch financial factoring to assume ownership of sales invoices. In this way, companies receive most of the monies owed on the invoices, usually between 80 and 90 percent, immediately. There are two types of invoice finance, the most common being invoice factoring and the other invoice discounting. With invoice factoring, the factor takes over the responsibility for debt collection and decisions concerning the credit rating of a company’s customers. Invoice discounting allows a company to retain all billing, collecting and credit related decisions, enabling them to maintain a close relationship with its customers.
Jan
23
Finding financial support for a new company venture can be difficult, so when considering new business loans there are a number of key elements to put in place in preparation for making an approach to a bank or other lender.
Having a clear business plan is vital; it should spell out exactly what the business is seeking to achieve, how much it will cost to achieve it and how and when income will be attracted. Once the whole picture for the business is understood, those items that might need additional support in the form of a loan can be easily identified, alongside the amount of borrowing required and the means of repayment.
New business loans carry a high level of risk and banks will expect to see supporting information, as well as a business plan. This usually takes the form of financial records and information about the level of security that can be offered against the loan. Bringing these details to a meeting, in order that longer-term plans can be discussed is always a good idea and if an accountant or financial advisor is available in support of the application, this is likely to give the lender added confidence in the potential success of the endeavour.
Banks like to have a clear idea of how they might fit with development plans for the future, as well as the present, so being able to set out plans for growth and expansion at an early stage, is a bonus, as long as they are realistic and achievable.
Jan
9
When the day arrives that you decide to use invoice factoring to solve your company’s cash flow problems, you will soon find that there are a multitude of options to choose from. Not all of them are the same and selecting the wrong one could well end up in a public relations and legal disaster.
A solution might be to use the services of an invoice factoring broker, such as Touch Financial. This will give you access to a number of approved factoring companies. You can discuss your needs with the brokers and they will then recommend the factoring company that is most suitable for your specific type of business and circumstances.
Even when you use a broker, you should still ask a number of relevant questions before signing on the dotted line. Your first question should be to see the company’s record on how efficient it is at collecting debts.
Secondly the factor should have a flawless record when it comes to dealing with debtors. You can certainly not afford to lose loyal customers because of incompetent or rude staff at a factoring company alienating them.
The factoring company should also be familiar with your particular business sector. There is, for example, a vast difference in the way a legal practice and a software company operates and interacts with its customers.
Another very important point is that you should know exactly what steps need to be taken if you want to end the agreement with the factor.
Jan
3
Companies have numerous options when it comes to new business loans. The entire purpose of loans is to increase cash flow to invest in the business. Outside of typical business loans, companies have two other options including invoice discounting and invoice factoring. The first is used mainly for larger business, while factoring is ideal for small and medium businesses. Some factors are even considering new businesses if their credit history is good enough.
What Is Factoring
Invoice factoring is a method used to receive funds from unpaid invoices immediately instead of the six weeks or more you usually have to wait. These new business loans are provided by a factor that takes a set percentage of the invoice amount as their service fee. Factoring is less expensive than discounting, which is another reason it is better suited for new and small businesses.
When you invoice a customer, you direct them to pay the factor directly instead of you. You also send the invoice to the factor. They handle all debt collection, preventing you from having to manage your sales ledger yourself. This does let your customers know you are using invoice factoring.
Benefits
Factoring services as business loans offer numerous benefits. The main benefit is access to most of the invoice amount within 24 hours. You can immediately reinvest funds back into your business without waiting. Since you know exactly when funds are available, you can better manage finances without wondering when invoices may be paid.
Since the factor handles debt collection, this prevents the need to hire extra employees for credit management. This frees up more money to use for investing in the business. The factor also checks the credit history of customers to prevent you from doing business with high-risk customers in the future.
Dec
20
There are several reasons why a business might choose to make use of invoice factoring rather than opting for business loans.
Factors will look at how creditworthy a business’s debtors are, rather than the creditworthiness of the business itself. Therefore, it can often be the case that funds will be made available by factoring companies when they would not offered as business loans.
The cost of a bank loan could be less than the cost of invoice factoring, but there are key differences in the terms and conditions that will apply to the business, depending on which facility they use. It may be that restrictions are placed on a business taking a bank loan that would make it difficult to operate in the way that it chooses. A factoring company might be chosen instead to maintain flexibility.
Taking the cost into consideration, factoring can be a method of wealth creation within itself, particularly if there is a good margin between the cost and sale price of the product involved. If finance cannot immediately be obtained elsewhere, invoice factoring can allow a business to continue growing when otherwise it might be forced to slow down.
If a bank loan cannot be obtained, factoring might also be chosen above alternative methods of finance such as venture capital. Other forms of finance often cost more and could take too long to obtain. Alternatively, different types of financing can be combined or invoice factoring can be used as a bridging facility while other finance is sought.
Dec
15
New business loans are hard to come by. A standard loan requires collateral. However, with an excellent credit history and profit potential, you may be eligible for invoice factoring. This only applies if you sell to other businesses on credit rather than directly to customers. Invoice finance companies help you decide whether a loan, factoring or discounting is the better option.
Factoring Requirements
The purpose of new business loans is to have immediate cash flow in the business. Factoring works the same way. When you sell to a business, you are left with outstanding debt until the customer pays. This can take one to three months, sometimes even longer. This is money you desperately need to keep the business running. To take the burden off you, factoring allows you to sell your invoices to a third party.
They keep a set percentage, which is often higher for new businesses. They also manage all debt collection to save on hiring credit management employees. Most factors require an annual turnover of at least £50,000, but with slightly higher fees, smaller, newer businesses may be eligible as well.
Nov
27
For businesses operating today, the payment of invoices for services or goods supplied can present a problem. For the majority of the time your clients may pay your invoices quickly and efficiently, but this may still result in waiting for several days to receive payment. As a worst case scenario, you might typically wait several weeks for sales invoices to be paid, consequently slowing down your cash flow whilst capital is occupied by the non-payment.
For most businesses the option of debt factoring is a very viable solution. By taking unpaid invoices and essentially selling them to a third party, you can free up much needed cash at a much quicker rate. The debt factoring company will typically pay a percentage of the invoice as soon as it is sent. This makes the funds available to your business within 24 hours, meaning you have access to the money much more rapidly in comparison to if you had waited for the invoice to be paid directly from the client.
Debt Factoring can also provide you with much needed support when it comes to credit controlling. They can communicate with your invoiced clients, being the point of contact for payment and also chase payment if it becomes necessary. As well as this, they can also offer much needed insurance against non-payment of invoices. This ensures that if a company cannot pay an invoice, your business will not suffer as a consequence.
Nov
22
Touch Financial Support is the largest invoice finance broker in Britain. It was founded in 2008, following the merger of Telford Jones and Simply Business and is part of the SFP Group of companies, based in Canary Wharf, London. Its website offers a valuable ‘Knowledge Base’, which is chock full of useful financial information for businesses. It is a member of the Financial Services Bureau (FSB) and the Asset Based Financing Association (ABFA)
How Touch Financial Factoring Works
The company’s financial services range from commercial mortgages to providing financial securities for import and export companies, but this article concentrates on their factoring services. A helpful infographic on their website describes how the service works. They will help put you in touch with a lender and provide ongoing support. The company is paid on a commission basis by the lender, who pays for each introduction, so their service will not cost you a penny. Once Touch Financial has found you a suitable lender, you send that company your invoices and they will pay you 80-90% of the value of the invoice and chase the creditor for the full amount. Once the invoice is paid, the lender will give you the balance, minus any charges. Touch Financial recommends the process as a solution for any small business with a turnover of more than £50,000, with no in-house credit department and whose principal asset are its invoices.
Touch Financial Services is partnered with over 20 of the UK’s leading factors (lenders). They include Lloyds TSB, the Bibby Group and Venture Finance. The Invoice Financing Forum has praised their innovative business model, but has expressed some concerns over their treatment of clients, raising questions about whether they really try to match clients to the best lender or whether there are other factors influencing their choice. However, no customer has backed up these claims, as far as this author can ascertain.
Nov
16
Companies that provide invoice discounting services allow businesses to release an agreed percentage of cash from their accounts receivable in advance of the debtor settling the account. This is similar to the role played by factoring companies, except that in the case of invoice discounting the lenders do not take on a credit management role. Therefore businesses must make their own in-house arrangements to chase debtors, and also bear any risk associated with bad debts. Obtaining insurance against bad debts is usually recommended.
Advantages of Invoice Discounting
When businesses are owed money, they may know (or hope) that it will be received eventually, however in the meantime they do not have access to funds they have already earned. With cash flow being such an important part of a healthy business lifecycle, the delay in receiving income can cause major problems, and may even hamper survival. Invoice discounting services can actively negate cash flow pressures, leading to the creation of a business environment in which growth can take place. Typically, a lender will offer a business up to 90% of the value of assigned invoices to creditworthy debtors in advance, the remaining 10% – less any fees or other charges, such as interest – being paid when the funds are actually received.
The invoice discounting process will not affect customer relations, which is an important consideration for many businesses considering this route. Often companies offering invoice discounting services do so under a confidential arrangement, so that customers never know that an external lender is involved at all. This makes it easier for businesses to offer ‘standard’ credit terms of between 30 and 90 days, whilst still benefiting from financial advances to ease cash flow.
Nov
2
All companies require funds in order to buy assets, pay employees and pay for any contract work they need. Even the most basic business has start up costs at some point, whether it be for advertising space in a newspaper, buying in raw material from abroad or the equipment needed to process orders. Therefore, it is very important for anyone looking to start up a business to be aware of the different types of business financing.
The first type of business finance that most people will be familiar with is a business loan. Business loans are taken out from banks specifically for use in a business and depend on the bank’s trust in your company’s value. Business loans have interest added to the repayment and the loan must be repaid to the bank on or before a certain agreed date. The second type of financing is from investors. This type of financing does not have to be repaid but the investor and the business agree upon a percentage of profits to be paid to the investor. Investments are usually made after the initial set up period.
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