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What is debt factoring and how does it work?

Award winning debt factoring provider in the UK.

 

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What is debt factoring?

Debt factoring is an invoice finance facility when a business raises an invoice for work completed, passes this to the debt factoring provider who then follows up the payment from the debtor on behalf of their client.

Debt factoring is a form of business funding and uses one of the most significant assets your business has - your accounts receivable. Your debt factoring provider then collects the full invoice payment from your customer and pays you the outstanding amount, minus a small fee.

The debt factoring company will chase the debtors for payment of the invoices and once received, will give the remaining 10% to the business, minus their fees for providing this service.

The business will be given up to 90% of the invoice value almost immediately from the point of raising the invoice, therefore reducing the cash deficit for the small business.

Debt factoring is proven to help businesses grow and prosper and is an excellent alternative to a bank overdraft.

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The advantages and disadvantages of debt factoring

Advantages of debt factoring

    • Improved cash flow - release money tied up in unpaid invoices and boost your cashflow
    • Flexibility - your funding line increases at the same rate as your turnover meaning that you don’t need to renegotiate terms
    • Save time - relieve your business of the burden of credit control and concentrate on your core business 
    • Bargaining power - debt factoring can help you to negotiate better terms with your suppliers
    • Faster growth - grow your business at a much faster rate due to the flexible funding line

Disadvantages of debt factoring

    • Reduces overall profit - the factor always charges a percentage of the overall invoice value
    • It's the solution to only one problem - factoring solves just one problem - cash flow limitations due to clients paying later than they should be. It should therefore only be used to solve this problem, rather than business loans and lines of credit which can be used to help with all sorts of business needs
    • The finance company will contact your customers - the factoring company contacts your clients at the start of the relationship and will be in contact to say they will be managing your invoices. The factoring company may also contact your clients if any issues arise such as payments being late

Debt factoring company awards

Highly Commended Factoring Provider 2021

Best Invoice Finance Service 2021

Best Debt 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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What is debt factoring and how does it work?

What is debt factoring and how does it work?

What is debt factoring and how does it work?

Check out this short video for a bit more information on what debt factoring is and how it actually works.


Faster Simpler Smarter

Smarter, Faster and Simpler Debt Factoring with Hitachi Capital Invoice Finance.

Watch this quick video to see how we are revolutionising the Cashflow Finance industry.

Faster Simpler Smarter


Debt factoring has been revolutionised with our digital onboarding process


  • The benefits of working with debt factoring companies like Hitachi Capital

      • Boost your cashflow without having to wait up to 120 days for your customers to pay you
      • An debt factoring 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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Debt factoring FAQs

Is Debt Factoring expensive?

The cost of debt factoring is split in to three key areas:

  1. A set up fee for the administration of establishing the facility.
  2. A service fee which covers the admin costs and management related to your account, which is then charged as a percentage of your gross turnover.
  3. A finance fee which is the cost of the money you draw down. This is charged daily against your outstanding balance.

All reputable finance providers will be transparent about the fees and costs related to the facility prior to signing the agreement.

Is Debt Factoring long term?

Debt Factoring can be both a long and short term form of borrowing. The majority of businesses incorporate Debt Factoring in to their general business operations, with associated costs factored into overall profit margins, tending to view the facility as more of a long term solution.

What is Debt Factoring used for?

There are a variety of reasons companies utilise Debt Factoring services for their business. For starters, Debt Factoring helps companies reduce their cash flow concerns by receiving payment of invoices straight away. Customers who take a while to process your invoice payment can put a strain on your cash flow, and Debt Factoring with Hitachi Capital Invoice Finance gives businesses an option to receive cash in 24 hours, as opposed to waiting 30, 90 or even 120 days to get paid.


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