Business Library

Cash Flow: Time for a Change?

Over 40,000 businesses use Factoring and Invoice Discounting products in the UK, according to the latest figures from the Factors & Discounters Association.

The turnovers of these firms will range from £50k to hundreds of millions at the top end.

So should you be joining the bandwagon or, if you are using this service, is it time you thought of moving to a better deal?

New to Factoring and Invoice Discounting:

Factoring and Invoice Discounting are increasingly becoming the business funding tools of choice.

Both are appropriate forms of finance for many companies that want to optimise their cash flow, from start ups, restarts and those looking for company purchase and MBO transactions.

In simple terms, a company sends its invoices to the finance company and who provide up to 90% of the value of those invoices, up front, to increase the company's liquidity raise cash flow, for example to expand the business.

Factoring also includes a dedicated credit control service, ensuring the sales ledger is managed effectively and payment times are improved and maintained. The main difference between Factoring and Invoice Discounting is that Invoice Discounting does not include this service.

A company with a turnover of £500,000 pa, can expect to pay £14.33 (combined fee of both the administration and interest costs) on a £1,000 invoice, based on a one month collection period from the customer on that invoice.

Costs are worked out depending on the company's turnover, the desired lending facility and the level of work involved in running the account (i.e. the number of invoices raised in a month and how many customers are involved in the collection process etc).

Compare rates for: factoring | invoice discounting

Looking for a better deal:

Just as people are becoming increasingly knowledgeable about deals on credit cards, or mortgages, and happy to move their accounts every few years, the same is set to increase in Factoring and Invoice Discounting markets. Below are some common reasons for moving and some key things to look out for:

Reasons for moving:

Funding levels are restricted on the largest customers or overall ledger
Advance rate is not what was previously expected
The ledger contains more export invoices today than when it started
It is appropriate for the company to change from a Factoring product to an Invoice Discounting product
Time for a service fee reduction

What to watch out for:

Always check if there is a minimum base rate on the account, with which could mean missing benefits of further Bank of England Base Rate reductions
Is there a set up fee on the account? For all facilities you will need to pay to register the book debt charge but there may be fees beyond this.
How much will it cost for you to receive your money by electronic transfer (including BACs and CHAPs)?
When is the chargeable annual minimum calculated and billed to the facility?
How easy is it to change the funding levels?

Despite the above key pointers, it is very straightforward to move from one provider to another, as all providers Decision Finance work with are members of the industry body which has a set procedure called an inter-factor transfer.

In summary, your new provider pays off the balance of your current borrowing with your existing funder, taking on all outstanding invoices on the account. The whole move should be relatively painless and can be completed in a couple of days.

Compare quotes for: factoring | invoice discounting