When the customer has paid, the money goes to The Invoice Company, and then Joe receives the remaining invoice value minus the Invoice Company’s fees. In extreme cases, lenders will even take legal action if necessary - these kinds of credit control services are a key benefit of factoring. The advance percentage in Joe’s agreement with The Invoice Company is 80%, so when Joe raises an invoice worth £10,000 and uploads it online, The Invoice Company advances Joe £8,000.Īs we’ve talked about, one potential advantage of factoring is credit control, so if the customer was late paying what they owed Joe, The Invoice Company would contact them on his behalf and remind them the bill was overdue. Joe’s Business needs help with cash flow and agrees to a factoring facility with a lender. That means that factoring is often what lenders favour for companies with low turnover, a short trading history, or any other challenging circumstances. From the lender’s perspective, factoring is lower-risk because they’ll have more control over ensuring your customers pay you on time. One of the main things to consider about any form of business finance is risk. Other types of invoice finance are invoice discounting, where you remain in charge of your credit control, and selective invoice finance, where you can choose which customers or invoices to finance. Some factoring providers will give you the option to credit insure particular customers or your entire sales ledger to minimise your exposure to bad debt (this is known as recourse and non-recourse factoring).įactoring is a subcategory of invoice finance. Typically, payments from your customers will go into a bank account controlled by the factoring company, and your customers will be aware that you use factoring.
The amount of finance available will typically be stated as a percentage of your outstanding debtor book or sales ledger, but may be constrained by specific terms such as limiting exposure to a single large customer. A factoring provider lends against your customer invoices, enabling you to receive most of the invoice cash value immediately rather than waiting weeks or months to get paid.
Invoice factoring is a form of invoice finance, designed for businesses that invoice their customers and receive payment on terms. Here’s everything you need to know about invoice factoring. Factoring usually includes credit control services, and helps companies release cash from their debtor book. Invoice factoring is a way for businesses to raise money by selling invoices to a factoring company at a discount.
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