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Invoice
discounting is a quick and cheap form of
finance, but many businesses still have
questions about how it works. To help you
get a good deal from your factoring, here
are the answers to your top questions:
What Types of Business Can Use Factoring and
Invoice Discounting?
A huge number of
businesses can benefit from invoice finance
services, from Taxi companies to IT
businesses. However, most retail businesses
are not suitable as no credit terms are
generally offered.
How quickly will payments from my customers
be cleared funds in my account?
Funds from customer collections are
typically available on the day following
their receipt - no need to wait for cheques
to clear!
I've heard of some invoice finance companies
only chasing the big invoices for payment,
leaving clients to pay the charges on
overdue invoices. Is this common?
Be careful not to get tied into a contract
that allows this to happen. However, a large
proportion of invoice finance companies
chase all the overdue invoices regardless of
value.
Do I have to factor all of my customers?
Most companies usually prefer that all
customers are factored, there are some
invoice finance providers that will provide
your business with a facility that allows
you to factor selected customers, therefore
saving you money by not factoring customers
that pay on time.
How are the charges structured?
Charges are generally broken down into 2
parts. The 'service charge' which is based
on the amount of administration involved in
your account and the 'discount charge' which
is the cost of the money you borrow.
How much are the service and discount
charges?
The service charge is typically between
0.75% and 3% and the discount charge is
usually between 2% and 3% above base rate.
How much work will be involved in sending
you my invoices?
Usually a minimal amount - you can simply
send in an invoice schedule with complete
details of the invoices. Alternatively many
invoice finance companies provide the
facility to upload invoices directly over
the internet
When do you start charging me for the funds
I draw?
Clients are charged only from the time when
the payment to you is made. You only pay for
the money you draw, not the total amount of
money you have available.
I've heard of many companies being tied in
to an agreement for years. Is this a fact?
It is true that some contracts are long term
this can be the case with the larger invoice
finance companies and can sometimes be
difficult to terminate. Having said this,
many of the independents offer shorter
contracts that run for just 12 months
(terminable by 3 months notice thereafter).
Do I have to deal with a call centre? How
well will the person on the end of the phone
know my account?
Client service is one of the most important
factors to consider when choosing an invoice
finance company, it is important not to
sacrifice service for price. Many larger
invoice finance companies will have a high
client to account manager ratio which makes
it difficult for the account manager to
entirely understand your business. A ratio
of more than one account manager to 25
clients generally means that the account
manager will not fully understand your
business.
The right invoice finance company for your
business will have account managers that
manage fewer clients and will therefore know
your business inside out and understand the
issues your business faces.
How long does it take to set up an invoice
finance facility?
This will vary considerably with the company
that you are working with. The time to set
up a facility can range from anywhere from a
matter of days with the smaller less
bureaucratic providers, up to weeks with the
larger providers.
Find out whether our Factoring and Invoice
Discounting services could help your
business.
