Account receivable factoring provides businesses with an option to finance their venture without taking out a loan. This is a type of debtor finance where SMEs sell its invoices to a third party at a discount, in order to provide an immediate cash injection.
There are many reasons why a business may factor an invoice, including increasing cash flow and mitigating credit risk.
Factoring is a financial transaction where a company sells it receivables (invoices) to a factor, who collects the payments directly from the business’ customers. Most businesses choose this option if they want to receive their cash up front instead of waiting the duration of the agreed payment terms.
Once a business has sold its invoices to a factoring company, they will be charged a factoring fee, which is commonly a percentage of the amount of receivables being factored. This amount can depend on a number of things, including the industry your business operates in, amount of receivables being factored, quality of your customers and the average number of days outstanding in receivables.
There are a number of advantages to account receivable factoring. This is a very simple form of commercial finance, and the main requirement is usually a client base with good credit. Your own credit history is not usually considered, so if you have adverse history or have not been operating for a large period of time, you can piggyback on the good credit history of your clients.
Once your invoice has been sold, the factor will be the ones that chase the payment, meaning you no longer have to worry about playing the role of collector, and once the invoice has been paid, the money will be returned to the company they bought the invoice from, minus their fee.
The downsides of this commercial finance method is that you have to pay a fee to use this service, factors often buy invoices at discounted prices, meaning you’ll receive less money than if you processed your own invoices.
As the factoring company takes a risk when taking on account receivables it charges a fee. The fee will vary depending on the provider and these fees are often negotiable.
Accounts receivable factoring allows you to release cash quickly from your unpaid invoices.
As your lender, we can release up to 90% of your invoices within 24 hours. On payment of the invoice from your customers, we will then release the final amount minus any fees and charges. There are different types of invoice financing options available to businesses depending on the situation and the level of control they require in collecting unpaid invoices.
We are an invoice financing company who offer a solution whereby payments are collected on your behalf managed by our team of expert credit controllers so you can focus on running your business. Our Confidential Invoice Discounting solution is offered to businesses who want to maintain their own credit control processes, therefore this remains strictly confidential so your customers are unaware of our involvement.
Hitachi made the process of moving factoring facilities painless, bearing in mind we previously had our facility with the same provider since 1997. I cant fault Hitachi's staff and processes and we are delighted with the move.
10:45, October 21, 2021
Staff excellent all together professional
05:57, October 03, 2021
Great service so far
14:20, August 27, 2021
Game-changer for our transport business
16:29, August 07, 2021
Excellent customer support
11:53, August 06, 2021
If you are a business that is experiencing cash flow shortages or is fast growing and cannot access bank loan financing, if you are a start up or have bad credit or you just need access to quick cash in order to maintain operations or invest in growth then factoring receivables may be a good idea for you.
Maintaining cash flow is essential to the success of a business and by selling your receivables to a factoring company you can gain quick access to cash without the requirement of assets or by committing to long term agreements.
The costs of factoring differ but it can help maintain and grow your company whilst also removing some of the issues around collecting your receivables.
Factoring AR is the sale of a business’s accounts receivables to a factoring company to provide a quick boost to their working capital. An advance will be received from the factor of around 80% of their value. The factor then will chase up payment and on receipt of the full amount will pay the remaining balance to the borrower minus their fee.
The factors fees will usually be calculated as a percentage of the value of the invoice that has been sold to them by a business, around 0.5 to 5%. This amount will be deducted from the second instalment of cash that is paid to the business once the factor has received full payment of the invoice.
The first instalment is the advance received by the borrower straight away, around 80% of the invoices value.
The benefit to a seller of factoring its receivables is that it receives cash on unpaid invoices sooner enabling it to support its ongoing operations.
It passes on the responsibility of the invoices to the factoring company along with its associated costs around billing and accounting.
It saves time that would otherwise be spent on managing collections and monitoring credit worthiness of your buyers.
It is more flexible and less expensive than other forms of borrowing