Factoring & Invoice Services
Cash flow is one if not the single biggest hardship when running your own business but one option to assist
positive cash flow is to request further overdraft facilities from your bank if this facility is available.
Whilst traditionally the banks are helpful they are not the most competitive at present so a more flexible and
cost effective solution to your cash flow problems is to look at new, innovative options - Factoring,
Confidential Factoring or Invoice Discounting.
This type of business funding guarantees to release up to 90% of all issued invoices in a timely and speedy
fashion, usually within 24-48hrs which is a major plus point and allow you to leave that bank overdraft in
place for other areas of your business.
Michaels Commercial are proud to work with the major UK lenders in this field to assist you with your cash
flow and individual business needs.
This type of innovative funding is a rapidly increasing service offered to UK businesses and whatever your
business size and age, Factoring and Invoice Discounting could be the solution you are looking for.
For many SMEs outstanding invoices are their largest asset and Michaels Commercial can allow you to
access this cash value via Factoring in a timely manner issuing invoices as well as sales ledger and collection
services. Factoring can be a smart alternative to transfer the debt collection and ledger management to a
factor and almost immediately get cash advances with the issuance of an invoice which can then be used for
other business purposes such as investment to expand or reducing other debts.
When Factoring is taken, the lender, in this case known as “the factor” will fully manage your sales ledger
and provide you with credit control and collection services of all your outstanding debts, as previously
mentioned up to 90% of the amount owed to you typically.
The balance (less charges) is then paid when the customer makes payment directly to the factor. The
service is disclosed to your customer who typically receives a letter from the factor, or attached note to your
invoice, containing payment instructions to the factor.
There are typically two costs involved with this type of business funding which are:
1. Service Charge
which covers sales ledger management, collections services and bad debt
protection can range between 0.60% and 3.0% of turnover. The main considerations in determining
the service charge are your annual turnover, number of invoices and number of customers.
2. Interest Charges
This is calculated as the daily usage of funds and it is comparable to normal
secured bank overdraft rates and charges.
Many factoring companies provide Internet access to your account, allowing you to constantly monitor your
sales ledger and individual customer details for greater financial control on your part as well as peace of
mind.
Depending on the size of your business, you may already have the staff and facilities in place to manage and
collect you ouwn outstanding invoices so a different variation of this funding may be more suitable to you.
This service is known as Invoice Discounting and operates in the same was as factoring except for the fact
that the management of the sales ledger & payment collection remains with you so your customer will never
know it is in place to avoid any concerns that may arise.
If your business has an annual turnover in excess of £1 million and your own accounting procedures in place
then this will usually be more appropriate but we will explore all options with you to establish which is most
suitable for you.
Again there are two costs with this - An administration charge, either a flat fee or a percentage of turnover
and an interest charge for the cash advances.
The Main Benefits of Factoring & Invoice Financing are:
• Sales ledger management and debt collection. The factoring company does it for you.
• Instant Cash. 80-90% of your issued invoices are pre-paid within 24 hours.
• Factoring rivals and often replaces the traditional bank overdraft. In addition to all the credit management
services, a factoring facility grows with the business and does not need renegotiating every time an increase
is required
business.
Frequently Asked Questions
What charges are involved with Factoring and Invoice Finance?
In general terms the service charge will be in the range of 0.6% to 3.0% of sales factored and an interest
charge for the cash advances calculated and comparable to normal secured bank overdraft rates.
How soon will I receive the cash from the Lender/Factor?
Usually the monies will be with you within 24 hours of issuing the invoice.
What is the difference between factoring and invoice discounting?
Both provide immediate cash with the issuance of invoices. Factoring includes a full sales ledger service
management and debt collection service that is disclosed to the customer. In invoice discounting the sales
ledger management - the collection responsibility - remains with you. The service is undisclosed to the
customer.
How much of the invoice amount is advanced?
Typically 80 to 90% of the invoice amount.
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