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Are you Thinking of Using Factoring for Your Business?

Date Added: 05/04/2016  

In our experience, cash flow problems are the single biggest reason why small and medium sized businesses in the UK can struggle to grow. Indeed, it is all too common to see growing businesses not being in the best of financial health due to cash flow problems caused by late payment of invoices.

In this article we look at factoring as a possible solution to this type of problem and how we can help you find the best factoring provider for your business’s needs, even if you are struggling to be accepted for factoring.

What is Factoring?

If you run a business that has customer payment terms of 30, 45 or 60 days, chances are that some of your clients are taking considerably longer to pay you – perhaps 45, 60, 75 days or longer. This can lead to significant cash flow problems, which factoring can help solve.

Factoring happens when a business sells its invoices (account receivables) to a 3rd party finance factoring company, in return for receiving an up-front percentage of the value of each invoice, typically between 75% and 90%. In essence it is a form of loan to the business from the finance factoring company, who normally take over responsibility for collecting the money owed.

They make their money by charging a fee and interest on the money they have effectively loaned to the business.  

What do Factoring Companies look for?

Factoring is certainly a well established and successful form of finance for businesses looking to improve their cash flow situation. Typically, these are some of things that factoring companies are looking for in businesses:

-          Is your company B to B? Typically, most factoring companies will only provide factoring to businesses that sell goods and services to other companies.

-          Are your customers creditworthy? The factoring company will investigate the credit worthiness of your customers before it agrees to take offer you factoring services.

-           Minimum Invoice Amount. Often Factoring Companies have a minimum total invoice amount per month or per annum that they will deal with.

In addition, it is worth remembering that before a factoring company agrees to provide you with factoring services it will do the necessary checks into your business to satisfy its own financial requirements.

Why might a Factoring Company Refuse to Provide Factoring Services?

These are some of the reasons why factoring services may not be offered to a business:

-          The company is a new start-up
-          The company has a small turnover (less than £50,000 p/a)
-          There are CCJs against the directors
-          The company has already been declined by another factor

How to find the right factoring company and what to do if you are struggling to be accepted for factoring

There are over 80 factoring companies operating in the UK right now, so finding the right one for your business can be difficult. We can help. We have an established national network of factoring providers whom we know and trust. We know what they offer and we know what they’re looking for, so even if you have CCJs against you, or you don’t pass some or all of the criteria set out above, simply get in touch with us, because we know which Factoring Companies are likely to be willing to consider such cases.

It’s also worth knowing that there are some very competitive factoring deals available at the moment, which could save you and your business a lot of money if you find the right one. All factoring companies are not the same. We’ll help you get the best deal for you.

So if you’re considering factoring as a means of finance for your business, contact us or call us on 0800 038 5140 for an initial free discussion.

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