When you undertake to use a factoring service the company retains the exclusive nature of its relationship with its customers. Negotiating the terms and conditions of sales, namely price, delivery time, discount and so on, are always a matter for the company.

On the other hand, the company can strengthen its links with customers and concentrate on market exploration because it does not have to handle debt collection.

Too often burdened by this thankless job, the sales function can thus return to its main task. In the case of a dispute, the factor does not embark on any procedure without first informing his client. In all instances, the system is flexible and involves concerted action. The factor provides the company with full information regarding its customer situation, thus enabling the company to direct its sales policy accordingly.

In many cases the invoice factor you choose to use will offer different types of factoring service depending on your needs - you can choose to factor only one clients invoices, you can retain the collection on special relationships or you can use a factor who will perform the service without your clients ever knowing.

How It Works

Factoring does not entail a large change in the day-to-day operations of your business. Instead of sending invoices to your customers, you send them to the factoring company. Within 24 hours they will advance up to 95% of the invoice's gross amount to your business.

The factoring company will send the invoices to your customers and keep a copy of the invoices for your sales ledger. At the end of each month, they will produce a statement for each of your customers and they can furnish you with an aged debtors list.

Once your customer has paid the invoice to the factor, they will send to your company the rest of the money less the appropriate service fee for advancing the cash.

The service fee will vary according to the risk and work associated with your accounts receivables. Your fee will be lower if you have several well-established clients who you invoice regularly. The number of invoices you issue a month, the concentration of sales (percent of your business one client accounts for), and your turn over will all affect the service fee you pay. The service charge usually ranges from 0.5% to 3.0% of your turnover. Since all factoring companies have a minimum annual charge for their service, the service fee for companies with smaller turnover may be higher than 3.0%. (We do not recommend factoring for companies with less than £50,000 turnover). You will also have to pay interest on your cash advances. The interest rate is typically between 1.5% to 3.0% above the current base rate. The factoring company will usually require 5 to 7 days to set up your account and process your initial factoring transaction. Once your account has been set up, most factors can provide cash to you with in 24 hours of you raising a qualified invoice.