Jan
17
Those of you who are not familiar with factoring companies might well ask the question, what service can they possibly provide that your bank cannot? This is a valid question, which we will briefly discuss below.
To gain approval for a bank loan or line of credit, you will in, the first instance, need collateral. If your business owns its own premises or other high value assets, this may not be a problem. If yours is a new business, perhaps operating out of rented premises, it will most likely not qualify for a bank loan.
Even if a loan is approved, there will be a waiting period involved. Your application must go through the official channels, which may take weeks, a period of time you might not have if your company is having serious cash flow problems.
Invoice factoring companies, on the other hand, do not ask for collateral, except a reliable debtors ledger. They will need to be convinced that your debtors are all business customers, rather than private individuals and also that they normally pay their debts on time. The invoice factoring company might want to visit your premises to inspect your systems and study your debtors’ payment patterns. Your company will also need a certain minimum annual turnover in order to qualify; usually this is around £50,000.
Once your application has been approved, the money can be in your bank account within a day or two. The advance will normally be between 70% and 85% of your total debtors ledger, the balance, less costs, will be paid out once your debtors have settled their accounts.
The factoring company takes over the collection of your debts. If you prefer not to take this route, invoice discounting, where you remain responsible for debt collection, might be a better option.
Dec
10
Selecting an efficient invoice finance service takes some careful research. One of the most respected invoice finance brokers is Touch Financial. Touch Financial works with your business to help you grow more quickly without waiting for customers to pay. By working with over 20 UK lenders, they work to find the most effective solution for every individual business. Touch Financial understands businesses are different and there isn’t a one size fits all solution. This is why they provide both factoring and invoice discount options with varying rates and requirements.
Factoring
Touch Financial acts as a broker to provide invoice factoring services to businesses that meet certain requirements. Factoring available to both large and smaller businesses. This service is best for businesses without their own in-house credit management department. The main fee associated with factoring is called the service fee, which is only a small percentage of what is borrowed.
In most cases, you can expect to be able to borrow between 80%-90% of the invoice value from a lender. This allows you to put the majority of your outstanding invoices back into the business in as little as a day.
Invoice Discounting
With factoring, the factoring company actually handles your sales ledger for you. This also means your customer details are known by them and your customers must be informed of this. With invoice discounting, you handle your ledger and everything remains confidential. Your customers’ never know you are using the service. After you create a special bank account, you place in it the money you collect. The discounter then pays you the rest of the invoice minus the lending charge. This service is only for larger businesses with a high turnover rate.
Why Touch Financial Invoicing?
Touch Financial invoicing solutions are perfect for businesses of all sizes. By working with multiple lenders, you receive the best rates possible for your situation.
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.
Aug
27
There are certain business procedures in place when a business utilises invoice discounting. However, as businesses grow or shrink in size or complexity, sometimes it is wise to review current arrangements to improve company cash flow.
Invoice discounting relies on a company’s in-house credit department or accountant to rein in delinquent debtors. There may be a price reduction if the company opts to switch to invoice factoring where the factoring agent is responsible for credit control.
Review the cost of insuring against bad debts. Premiums change frequently and companies can reduce the cost of the insurance with periodic assessment of customer creditworthiness. Since premiums are based on minimised risks on credit limits, the review of customers’ concentration limits and loss history may reduce the cost of the premium.
Shop around amongst different factoring providers. The method of invoice financing is constantly evolving and other more competitive companies can offer a business a better price or force a negotiation of terms with the old factoring agent.
One of the costs associated with invoice finance is the method of money transfer. Most invoice finance transactions involve a BACS or CHAPS transfer. A CHAPS transfer clears sooner than a BACS transfer but it carries a transfer fee. If a company’s cash flow is in a healthy state, save money by switching to the BACS transfer method.
Other cost cutting measures include collecting on a debt owed before the due date when the fee of the factoring agent kicks in for collection of an invoice debt, review exclusionary clauses in an invoice finance contract and switch from whole turnover to spot factoring.
Aug
2
Invoice discounting works by releasing cash from your invoices through a third party provider. It is similar to factoring but no credit management services are provided, meaning that you will need to collect your own outstanding invoices.
There are four types of invoice discounting. The first is confidential invoice discounting, where there is no disclosure on the invoices and the discounting company has no contact with your customers. As the name implies, confidential invoice discounting is confidential.
The second type is disclosed invoice discounting, whereby a disclosure notice appears on the invoice advising the customer of the third party involvement. This is considered to be lower risk than confidential invoice discounting, and is sometimes available when the lender is not prepared to offer confidential invoice discounting.
The third type of invoice discounting is recourse invoice discounting, which is cheaper than non-recourse invoice discounting as you continue to take the risk. Your contract will specify how many days after the payment due date you must refund the advance, should the invoice not be paid. This is easier to obtain, as the third party will tend to have less stringent rules.
The fourth type is the previously mentioned non-recourse discounting. This is where the third party provider does take on the bad debt risk. It is more expensive but means that you never have to repay the advance to the lender; however you do have to pay the interest for the period prior to the bad debt being paid. The third party provider will also pursue the customer for the debt and take any necessary legal action.
Jul
5
Companies that are looking for extra ways to improve their cashflow have quite a few options to consider. They do not, however, usually include borrowing money from banks or commercial institution where repayment penalties are high.
Many business owners consider factoring to be the best financial solution for their new or existing companies. This is due to the small number of requirements involved in obtaining assistance from invoice factoring companies in general. The advantages of using invoice factoring services are many; first, factoring is not a loan, in the accepted sense of the term; second, it involves only three parties and third, value is not placed on the company’s worth, but rather on the value of the invoices it wishes to sell or borrow against. This is a great investment tool for most businesses, especially if they do not qualify for a bank loan.
If a company chooses to go down the invoice discounting route as a possible financial recourse, it may qualify for additional services, such as invoice finance. This service has no limitations on the number of invoices a company can sell. It can sell just a small percentage of its invoices or all of them, at a very competitive rate. The money received is not a loan, it is payment for services that have already been performed and for which payment is pending. Many new businesses can take advantage of this service, the only asset they need is a reliable and trustworthy list of clients who are a low credit risk.
Jun
21
Many business related activities or services carry with them their own set of jargon, which can be both baffling and essentially incomprehensible to those on the outside. The world of invoice financing is no different to the norm. Fortunately, neither the use of invoice financing nor its terminology is really all that complicated once it has been sensibly explained, and so here is our guide to the terms most commonly associated with the invoice financing system.
INVOICE DISCOUNTING – Like invoice factoring, this refers to a company that will provide finance to another company by purchasing the debt owed to them on invoices. Unlike an invoice factoring company, however, invoice discounting facilities do not offer any form of credit management service.
INVOICE FINANCE – This is used as an umbrella term for all forms of the service whereby companies purchase other companies’ invoices, including both invoice discounting and invoice factoring.
NON-RECOURSE – This refers to a form of credit protection taken out to ensure that the moment the invoice has actually been purchased by an invoice financing company, it cannot be handed back to the original business in the event that the customer does not pay their bills.
PRE-INVOICING – This simply refers to the issuing of an invoice before any goods or services have actually been provided to the customer.
PRE-PAYMENT – This refers to the amount of money that an invoice financing company is willing to purchase an invoice for.
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