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:
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.
This type of finance is perfect for businesses with a small-to-medium turnover who are looking for quick access to working capital.
Why choose us?
We are fully authorised and regulated by the FCA
We charge no up front fees
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.
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:
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
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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