Invoice Factoring

Invoice finance without the need to manage your own credit control

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Invoice Factoring

In simple terms the lender purchases the debtor from you and in return gives you 80/95% (on average) of the funds upfront.

 

As the lender then owns the debt, your customer will ordinarily pay them directly. This is one of the main differences between Invoice Factoring and Invoice Discounting; with Invoice Factoring your customer becomes aware of your arrangement with the lender.

 

With Invoice Factoring the lender will have their own Credit Control function, removing the admin burden from you.

Is Invoice Factoring right for me?

This product is designed for businesses who offer trade terms to their customers, as the factoring provider will lend you money against your unpaid customer invoices.

 

This allows a business to receive most of the invoice value immediately, saving you the time of having to wait to get paid.

 

Once you have drawn down the money from the lender they will have purchased the debt. For this reason, payments from your customers we be sent to the factoring provider directly, instead of to you.  Because of this, the lender will be responsible for any credit control process required to collect the debt.

 

To summaries invoice factoring:

 

  • You will receive a percentage (typically 80%) of the invoice value
  • Your outstanding invoice is sold to the factoring provider
  • Your customer will pay the factoring provider directly (making them aware of the arrangement)
  • The factoring provider will ordinarily use their own in-house credit control
  • The factoring provider may offer credit insurance to minimise your exposure should a debtor fail
  • If your customer is late paying it won't affect your cash-flow

 

Invoice factoring is normally seen as a lower risk from the lender's perspective, as they have more control over ensuring your customers pay you on time.

An Example of Invoice Factoring

Let's say you have a facility with a factoring lender that provides you 80% of your invoice values upfront.

 

  •  You raise an invoice to a customer for £10,000
  •  You send the invoice to your customer and upload it online to the lender
  •  The lender sends you £8,000 on the same day
  •  Your customer pays the factoring provider directly
  •  The lender sends you the balance less their fees

 

This type of finance is perfect for businesses with a small-to-medium turnover who are looking for quick access to working capital.

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How much does it cost?

The fees associated with invoice factoring vary from lender to lender and are not calculated in the same way as a traditional business loan.  With invoice factoring the fee you pay is calculated on how much of the facility you have used and how much credit control the lender has to do.  The fees are normally shown as a discount rate and service fee, let's explore these a little further.

 

Discount Rate

This is the amount the lender keeps represented as a percentage of your overall facility.  This rate is calculated on many factors such as the creditworthiness of your customers, how complex your trading agreements are, and how you choose to use the facility.  For example, will you have many smaller invoices per month or a handful of larger ones?

 

The discount rate is payable monthly. Lets look at a working example:

 

  •  You finance £50,000 of invoices per month through your facility
  •  Your discount rate is 2.5%
  •  You will pay around £105 per month

 

Service Fee

This is a monthly charge for your ongoing factoring facility and is based on the turnover put through the facility.  This typically means the greater your turnover, the lower the service fee percentage is.

 

Using the above discount rate details, let's assume that you finance £50,000 per month and that your annual factoring turnover (which is different to your total gross sales) is £400,000

 

  •  Your service fee is 2%
  •  The annual fee based on £400,000 would be £8,000, so £666 per month

 

An invoice factoring facility based on £50,000 per month would therefore cost £771.

 

The above is an example; the actual rate you will get is subject to your individual needs.  At MyInfinity Finance we work with some of the UK's largest and most trusted providers, meaning we have access to extremely favourable terms.

 

Like everything, it is always worth shopping around when your factoring facility is reaching the end of its term, as the fees and rates are negotiable at this stage.

 

We can do this for you. Complete our callback form and one of our invoice finance specialist will contact you to discuss your requirements.

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Trading/Registered Address: MyInfinity Finance Limited: Suite 20, River drive, Cookson House, South Shields, NE33 1TL

 

MyInfinity Finance Limited acts as a credit broker and are not a lender.

Applicants must be aged 18 and over. Terms and conditions apply. Guarantees and indemnities may be required.

We do not charge our clients for any of our services but will receive commission from any lenders that we are successful in obtaining you finance from.  We will never ask you for any upfront payments. Our services are for UK businesses only.

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