Over 40,000 companies in the UK now use some kind of Factoring. From new start businesses to established multi-million pound turnover enterprises, the motivation for using factoring stems from the need to generate cash.
Why? Almost all businesses that sell to other businesses offer payment terms to their customers. These vary considerably depending on many different factors.
Typically in the UK a business will offer 30 Day payment terms and in an ideal world 30 days after the invoice is raised payment will be received.
Not living in an ideal world means that this doesn’t happen and the average in the UK is for payments to be made after around 53 days.
To an awful lot of small to medium sized businesses in the UK this wait for payment can cause great difficulty. Funding is still required to pay staff, suppliers, utilities and so on during this wait for payment and so factoring was born.
In simple terms factoring converts amounts owed by customers into immediate cash, providing the liquidity needed to keep a business growing and allowing scope for expansion.
The most basic example would be a business invoices its customer for £10,000 with payment due in 30 days time. A factoring company typically would make available up to 85% so in this most basic of examples £8500 would be available immediately.
When the customer eventually pays the invoice the factoring company will pay the balance across (£1500) less charges for the facility
With this finance the business is able to continue trading, pay staff, its own suppliers and so on.
As a tool for business Factoring can be invaluable, enabling trade, developing markets, securing jobs, rewarding enterprise and supporting the UK economy.
Whilst the essence of the facility is as detailed above the actual mechanics of any facility can be complex. Additionally there are now over 50 companies in the UK offering Factoring services and it’s important to find the right one.
Consequently advice is important. Factoring Partners has been advising businesses since 1996, is independent, thus capable of offering an entire market view and we make no charge to business………..so there really is nothing to lose by talking.