If you are looking to enhance your cash flow through quick realization of your receivables or if your customers (debtors) are slow in making their payments, Factoring or Invoice Discounting is the ideal solution for you. Similarly if your business is growing rapidly and need more funds, factoring or invoice discounting can provide extra funds over your bank overdrafts.
Factoring is a method used by businesses to convert sales on credit terms for immediate cash flow.
Factoring helps a business to release the money tied up in their sales ledger to fund their business growth or even to meet daily financial obligations that every business needs. When you avail factoring facility from the factoring provider, you not only sell your outstanding invoices to the provider but also permit him to administer your sales ledger. Through this built-in flexible credit management facility, the factoring provider takes responsibility to send periodical account statements to your debtors besides chasing the outstanding dues. You can choose to opt for either with recourse or non-course option. In the former you would assume the risk of your customer non-payment, while in the case of non-course factoring, the factoring provider would assume such risk, subject to certain criteria.
It has been estimated that in the UK, late payments by customers are costing the businesses several billions of pounds each year. Keeping customers in mind, at 1st Commercial Credit, we make factoring and invoice discounting easy to obtain with minimal paperwork. We normally advance 85% of the value of approved invoices, which is more than what the traditional overdraft facility would fetch for you. Our decisions are not based on financials, tax returns or collateral offered. But we make our decisions primarily on the invoicing process and credit strength of the account debtor (buyer). We specialize in evaluating and provide factoring or invoice discounting facilities in less than a week. We adopt a simple approval process and we can expedite initial funding in 3 to 5 working days. Our clients can avail the benefits of our prompt service and begin to use their funds within days of completing an application.
Businesses that sell on credit terms have a hidden asset that most owners do not realize can be used for collateral.
1st Commercial Credit specializes in collateralizing and financing accounts receivable. The receivables are pledged as collateral and the business may draw cash against the eligible accounts receivable at any time. Factoring and invoice discounting are not loans, so there is no need to make payments or create debt to your business. For an additional cost, you can protect yourself from the impact of customer (debtor) insolvency or non-payment of invoices.
We don’t insist on any detailed business plan. Ideally factoring would be most suited to companies that are in the growing business or start up categories, while invoice discounting would be suitable for large companies having sound credit controls in place. Factoring would be suitable for companies even with small turnover of say GBP 50,000 per annum, while invoice discounting would be ideal for businesses having large turnover of say GBP 250,000 per annum with a spread of debtors. Hence we would be requiring some basic information such as your industry category, the number of customers (debtors) and their outstanding balances, your projected turnover for the current year.
A factoring company (or accounts receivable factoring) converts invoices sold on credit terms for immediate working capital at a discount. It has become a simple, fast and easy way to access business cash flow. In comparison with a traditional bank loan, a company that factors receivables has a quicker approval process.
1st Commercial Credit is a factoring company that specializes in evaluating accounts receivable and can make a prompt approval decision. The documentation requirements are not as lengthy, and the main requirement is that an applicant has invoices for work or orders that have already been satisfied. It also helps to have creditworthy customers. As long as a business has been in operation, meets revenue requirements and is free of liens or legal issues, approval is likelier.
Any business can qualify for factoring and invoice discounting if it sells goods or services on normal credit terms, with no stage payments
Every industry is evaluated differently because no industry invoices the same method. As a rule of thumb, your business must sell to a customer (debtor) having good caliber. Most of the industries such as wholesalers, manufacturers, temporary staff agencies and providers of business services are suitable for factoring and invoice discounting. Factoring and invoice discounting may not be suitable for retailers and businesses that depend on long-term service contracts or those following stage payments as payment norm. Ideally if the invoices have been raised on credit terms in arrears of the goods or service delivery and agreed as payable by the debtors, they are eligible for factoring or invoice discounting facility.
The list of things that your company can accomplish with a consistent and reliable cash flow is impressive. For one thing, you would be able to meet your payroll obligations without having to take out an interest-bearing loan from a bank. Your payroll payments would be done with your existing cash and would cease to become a long-term debt. Just the ability to meet payroll without utilising some sort of bank funding goes a long way towards reducing your company’s debt and freeing up working capital for so many other projects.
When you improve the efficiency of your sales ledger through invoice discounting, you can pay your vendors on time and improve your company credit profile. A strong cash flow means that you will have the funds you need on hand to finance a new product launch or expand your staff without requiring a commercial lender. You can plan the growth of your company knowing that you will only need a commercial lender for the truly large projects. Your company can fund the smaller activities on its own, which means that you will not be taking on a steady stream of debt as your company grows.