Debt Factoring – Can it help your business?

Debt factoring or invoice factoring can help many businesses however it is not suitable for everyone. It may not suit your business if you do not meet the basic criteria but even if you qualify for a factoring facility for your debts it may still not be suitable for you.

The advantages of debt factoring

Let’s look at how it can help your business. Debt factoring can remove the uncertainty surrounding your cash flow and when you get paid by your customers. This means that you can plan better and expand safe in the knowledge that you can pay your employees on time and settle your suppliers invoices when they fall due. Through the methodical approach to credit checking customers and credit control you can take on new customers and grow your business with more peace of mind. Factoring is a flexible form of finance that grows with your business as the amount of finance available is directly linked to your sales ledger. In other words, if structured properly to meet the needs of your business, the available finance will increase as your sales increase.

So what are the disadvantages of debt factoring?

The main disadvantage can be the cost. Debt factoring is definitely more expensive than overdraft facility although there are many comparisons online that will argue otherwise. If an overdraft is available to your business and the amount offered is sufficient to support your working capital requirements then there is a good chance this may be your best option.

If your business is seasonal then while in the busy periods your available finance will increase the reverse is also true. In quiet times your facility will reduce and if you have fixed monthly payments to meet this can cause problems.

A lot of clients we speak to also complain of hidden fees and restricted funding. This can be overcome by setting up a facility correctly in the first instance and understanding the total costs involved. A properly structured facility can generate much more cash than a poorly structured facility. In some instances four times as much cash. In terms of costs the difference between the cheapest factoring facility and the most expensive for the same business can be dramatic. Again, a cost effective, well-structured facility can cost half of what the most expensive facility can cost.

If you are looking for a debt factoring facility for your business contact Funding Solutions today on 0845 251 4040 or finance@fundingsolutions.co.uk

When is debt factoring not suitable?

  • If you raise invoices in advance of delivering your service or product.
  • You sell to private individuals rather than other businesses.
  • Your sales are cash sales rather than sales on credit terms.
  • If your margins are incredibly fine the factoring costs may eat up all your profits.
  • A seasonal business may not generate sufficient working capital during the quiet periods as the finance generated is linked directly to sales.
  • If your customer insists on a contract being signed with onerous clauses such as ‘sale or return’, ‘liquidated damages’, ‘right of set off’ or ‘paid when paid’ this can prove very challenging when looking to factor these debts.
  • It may be hard to find finance if you invoice for large projects in stages also.


How can Funding Solutions help?

At Funding Solutions we have a wealth of knowledge of the debt factoring market. We understand how each lender operates and what their appetite is for different types of deals. We also understand how debt factoring companies price their facilities and structure any additional charges. As such we believe we can save you time when setting up a facility to meet the needs of your business. We also believe we can save you money by demonstrating the most cost effective facility for your business.

Whether you are trying to set up the most cost effective facility or you are looking for a facility having being declined by a lender already you should speak to us at your earliest opportunity on 0845 251 4040.

No matter what your motivation is we will almost certainly have dealt with a similar case and we can help you quickly and effectively achieve your goals.


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