Invoice factoring, a sub-type of invoice financing, is a saviour for businesses in instant need of cash. Across the UK, it is a reliable source of obtaining funds. The released invoices have a vital role in the process. If a business requires funds for any urgent need, these invoices can be used to attain the cash. Still, knowing that a proposed invoice or purchase order can never be used to borrow money is essential.
Multiple factoring companies are available in the market. A comparison between them is needed if you are looking for a dependable one. TheBusinessFunds, a business loan broker, can shortlist the most promising lenders for you. Many invoice factoring companies in the UK are registered with us. Let us know your requirements, and our experts will find suitable finance companies. You will choose one, and we will assist you during the complete borrowing procedure from documentation to deposit.
Factoring invoice is a method of borrowing money from lenders using pending or outstanding invoices. When a business sells products, there is usually a gap between releasing and paying its invoices. This gap can be 30 to 90 days. During this time, the business owner may face any urgent cash need.
The invoice released to the customer can be given to an invoice factoring finance company in exchange for some cash. This cash is a certain percentage of the total invoice amount. The finance company takes the customer's complete payment (in decided duration). After that, it gives the borrower the remaining percentage of the invoice amount.
| Recourse invoice factoring Vs non-recourse invoice factoring | |
|---|---|
| In recourse factoring, an unpaid or disputed invoice is sold back to the borrower business. It has a lower factoring fee. | In non-recourse factoring, the finance company takes the responsibility of the unpaid invoices. This type has a higher factoring fee. |
What are the advantages of small business invoice factoring?
After reading the meaning of this type of invoice finance, you can sense its benefits. Let us be clearer and know its benefits one by one.
The business finance option works fast while assuring flexibility in the attainment of funds. However, a basic procedure is necessary if you want money. As a business loan broker, we provide the best lending suggestions and enlighten you about financial products. It is necessary to spread financial literacy to help business owners make the right and wise decisions.
An Example:-
A retail company releases an invoice of £10,000 to a customer. At the same time, the company gets a huge discount offer on raw materials from one of its suppliers. But the offer is for a limited period. The problem is the customer has not paid the invoices. The business owner cannot wait for it as he wants to purchase the raw material for profit. He will find a company and forward its released / outstanding invoices to the money lender as a solution. In return, the factoring invoice company will provide a certain percentage of invoice amount as loan to the business owner. It can be 75% to 90% of the total invoice amount.
In this case, the lender may provide £8,000 out of £10,000 as instant cash to the business. Later, the factoring company will take the payment from the customer. After deducting a fee, maybe £300, or whatever is applicable, it will give the rest of the amount to the borrower company. This way, the company owner could save a good profit on raw materials, which is beneficial for the future. The same process is applicable on invoice factoring in UK. You just need to choose the right finance company.
The usual rate of interest is 1% to 4%. Whether you apply for small business invoice factoring or large-scale business factoring funds, the minimum and maximum rates are similarly applicable. Only the individual circumstances of a business act decisive in the final rate it gets. Many other factors affect the cost that you should know before applying. These include:
Do not forget that only the released invoices are taken to provide funds. This is how the lenders can calculate the invoice factoring costs. Any current or pending purchase order can never make your business eligible for this. Besides that, selecting a reliable lender may not be a cakewalk for you, with numerous options in the market
Let us work hard for you and find finance companies relevant to your business requirements. Not only this, but we can bargain well on the interest rates if the cost of the funding does not convince you.
Before you avail of a funding option, you should always know its actual meaning and compare it with similar products. Any confusion may make you choose the wrong lender and the product. Sometimes, two products sound similar, but they have different natures. While sometimes two products sound different, they are similar in some aspects. Here are some points for invoice financing vs factoring that you should read for clarity.
| Invoice financing | Invoice factoring |
|---|---|
| It is the umbrella term used for all types of financing done using invoices. | It is a sub-category of invoice financing. Therefore, both are almost similar. |
| You pledge your invoices as collateral to borrow secured loans for your business. It provides short-term and long-term loans. | Here, the invoices are not used collateral. Money is borrowed against released invoices. The factoring company takes payment from the customers. |
| Invoice financing has nothing to do with your customers. | Here, customers are very important as they will finally pay the invoice. Even their credit score is considered while lending funds. |
| It is more like a loan or a credit as you pledge your invoices as collateral. | It is like advance money given to you based on the released invoices. |
Here comes another term that usually gets mixed up. As the reliable invoice factoring finance brokers in the industry, we always try to enlighten the borrowers. Let us understand how these two financial terms differentiate.
| Invoice factoring | Invoice discounting |
|---|---|
| It uses released invoices to give advance money to the business owners. | It accepts outstanding invoices as a security to lend funds to businesses. |
| It uses only released invoices because it is not a loan but an advance. | It uses outstanding invoices because it a loan. |
| There is no collateral required to receive funds through factoring. | It implies unpaid customer invoices as collateral. This one again proves that it is a type of loan. |
You can easily choose after reading about invoice finance Vs factoring and invoice discounting. All doubts are clear, right? Some borrowers ask us why people choose factoring over unsecured business loans in the UK. Well, the most obvious answer is that factoring is an instant source of money. However, unsecured businesses are short-term and speedy in their processes, too. In contrast, it is much faster and the last-minute saviour.
We are dedicated to providing unconditional advice on business finance. We are the experts in our field, and our specialisation and guidance have a backup of an ample number of years of experience. With no hidden fee, we provide humble and honest comparisons on small business invoice factoring in the UK. If you are looking for a lender to borrow money through this method, we can help you in the following ways.
Usually, 75% to 90% of the total amount of invoices can be obtained. However, the exact percentage you can obtain depends totally on your individual circumstances. A business with a clean and good invoice history can easily get up to 90% of the amount. Besides, a business with customers paying bills consistently on time easily gets more funds. The goodwill of a commercial entity is also an important factor for finance companies.
No, it is not a loan. It is a sub-category of invoice finance that offers your advance based on your released invoices. All the goods you have sold to the customers, their invoices will be used to attain advance funds. The invoice factoring companies in UK accept only released bills. It has nothing to do with the outstanding bills or purchase orders. To ensure its financial security, the factoring companies cannot afford to accept the pending invoices.
Of course, it is. In fact, for small businesses, this funding product or invoice discounting, invoice financing, and all invoice-based financial products are saviours. However, the business should have a clean invoice history. It should show the customers are paying their bills on time. If you own a small-scale business, do not worry. We can find a list of factoring companies providing easy funds.
It is a reliable source of funds that can replace working capital loans, small business loans and other types of loans through its advance cash. Manufacturers, retailers, and wholesalers from all industries can apply for it. There is no restriction on the type of industry. After all, it is a business financial product and any commercial entity can obtain funds through it.
It takes a short time to get funds through this financing product. This time can be as short as 24 hours. At maximum, it goes up to three to four working days. This is why factoring has become an extremely reliable source of funds for businesses. Another great thing is that factoring is not a loan but an advance. It will never add debt to your liability side in the balance sheet.
