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Accounts Receivable Factoring

What is accounts receivable factoring, how does it work and is it the right factoring solution for my business?


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Accounts receivable factoring explained

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.

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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.

What are the advantages and disadvantages of accounts receivable factoring?

Advantages of accounts receivable factoring

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.

Disadvantages of accounts receivable factoring

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.

What is the cost of factoring receivables?

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.

The costs will depend on the services required and these can be broken down into the following:
    • Discount charge – this will vary but can range from 0.5% to 5% and is calculated on the value of the invoice
    • Credit Management fee – this is the cost for credit checking the buyer along with any administration costs associated with providing the service
    • Credit protection fee - this will only apply if you have chosen non-recourse factoring where the lender takes the risk for non-payment
    • Notice period to end the service - this can vary but all charges must be paid during this notice period time​

  • Have you thought about accounts receivable factoring as a cash flow solution for your business?

    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.

    The benefits of invoice finance companies such as Hitachi Capital
      • Boost your cashflow without having to wait up to 120 days for your customers to pay you
      • An invoice finance company with a revolutionary digital onboarding process, giving you quicker access to funds and the ability to take on new business remotely during this lockdown period
      • Release up to 90% of the invoice straight away, and the final 10% when the invoice is settled
      • No need to chase your invoices, we can do it for you
      • 6 month trial period followed by a rolling contract

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Accounts receivable factoring has been revolutionised with our digital onboarding process

Accounts receivable factoring company awards

Best Invoice Finance Provider 2021

Highly commended factoring provider 2021

Best Factoring Provider 2020


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Please note that costs are an estimate only and are based on the entered values. Your final quote may change once a Business Development Manager has assessed your business in more detail.

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Why choose Hitachi Capital Invoice Finance as your accounts receivable factoring provider

      • A 6 month trial period so you can be sure the product is right for you
      • Followed by a 6 month rolling contract – we don’t tie our clients in for long periods
      • A one fee solution with no hidden fees
      • Award-winning client service by our team of expert Client Managers
      • Our Relationship Management team are in the field to visit you in person
      • We are part of Hitachi Capital (UK) PLC, a company that is going from strength to strength – we’re here for the long term.

Smarter, Faster and Simpler Cashflow Finance with Hitachi Capital

Smarter, Faster and Simpler Cashflow Finance with Hitachi Capital

Smarter, Faster and Simpler Cashflow Finance with Hitachi Capital

Find out how we are revolutionising the way UK SME's access cashflow finance.

Accounts receivable factoring FAQs

Is factoring receivables a good idea?

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.

How does factoring AR work?

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.

How do you calculate receivables factoring?

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.

Why is factoring receivables beneficial to a seller?

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

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