New Start Business Setting Up a Factoring Facility

Factoring can be a fantastic source of working capital for a new start business. It relies on the credit worthiness of your customers rather than on your business. However, there are some important considerations when setting the facility up. These will make the difference between a flexible and easy to use source of working capital and a frustrating facility that is restrictive.


Minimum Fees – many facilities have high monthly minimum fees. Once your business is more mature and turnover is more predictable minimum fees are not really an issue. However, as a new start business turnover is likely to be unpredictable in the early months and potentially low. Minimum fees can kick in and eat up early profit margins. We can set up facilities with no minimum fees or with very low minimum fees.


Overall Fees – it is important to consider total fees rather than just headline rates. This will mean more of your hard earned revenue hits bottom line profits.


Concentration Limit or High Involvement Limit – Many new start businesses will start out life with one customer or just a few. Concentration limits (sometimes called high involvement limits) restrict how much debt you can have outstanding to a single customer as a percentage of the overall debtor book. This can cause restricted funding if not set up properly. We can provide a 100% concentration limit meaning funding is unrestricted.


Make the Facility Future Proof – whilst reliable crystal balls are in short supply it is important to think of things that may impact on the facility going forwards. They may not seem like obvious considerations but things to think about include:


– if you are a recruitment business looking to fund contractors will you look to introduce permanent placements?


– if you are a supply only business will you look to include installation as a service?


– will you require bolt on facilities such as trade or stock finance?


– will you start exporting?


– is there a major contract in the pipeline? Will the concentration limit be enough?


We can help with all these questions and can ensure that a facility is set up that will be cost effective and that will work properly both now and for the foreseeable future.