Factoring Factoring involves using your outstanding invoices as security against short term lending, allowing you to receive up to 90% of the invoice value immediately. If you have an order worth £10,000 with 60 days credit, you could use factoring to gain up to £9000 of the invoice now, and the balance (minus an administration charge, usually 1-2% of the invoice) when the money is paid. Start-up Finance When starting up your business, the process of gaining finance can be extremely difficult. There are many different sources of finance available, and you should consider each type carefully before you apply.
Asset Finance
Asset Finance (sometimes called Sale and Leaseback) allows you to sell a piece of equipment that you own, and pay a monthly fee to lease it back. This allows you to raise quick finance without (in most cases) needing extra security.
If you struggle to obtain the level of start-up finance that you require from other means, you can use asset finance to help meet the shortfall. You can buy an item of equipment and then go straight into an asset finance agreement; allowing you to pay for the equipment over a number of years (usually 2-10 years).
Equipment that is used for asset finance is expected to have a long working life, and be easily identified. Items do not have to be new, as long as they are expected to have a significant remaining life. This means you can buy good quality second hand equipment and still use for it asset finance; although you will obviously get less finance with older/cheaper equipment, as the product value is lower.
One disadvantage of asset finance is that some leasing companies will retain ownership of the equipment at the end of the lease period; therefore you may have to search around to find an agreement that returns ownership to you once the finance has been repaid.
Factoring can be a valuable tool when starting a business, as it allows you to gain finance from your early orders immediately, even if the invoice has a credit period or the goods have not yet been produced/delivered. Another advantage of factoring is that the factoring company is responsible for collecting the invoice payments, which could save you time and effort in chasing overdue invoice payments.
“Factoring can actually be most advantageous for new and growing businesses.”
Although factoring is often perceived as being for large and established businesses; it can actually be most advantageous for new and growing businesses where speed of finance is crucial. Factoring can provide you with a quick and low cost source of finance, without the need for further security.
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