Factoring and invoice financing are good ways of improving cash flow using a businesses debtor book. Typically 80%-85% of a companies outstanding debtor book can be raised. For example if debtors stand at £100,000 it may be possible to immediately raise £80,000 rather than having to wait 30 days or the usual length of time that it takes a customer to pay. In addition if using factoring it can save in administration overheads by in effect outsourcing the credit control function.
factoring and invoice financing are an effective way of improving cash flow and financing growth
The companies debtor book is sold to the factoring company. In return the factoring company processes the invoices and advances the company loans against the money owed to the business.
Factoring can be used by start up companies and would not normally be offered unless a businesses turnover is over £100,000.
The invoice discounter takes security over the debtor book and advances loans on that book. The business retains control of the credit control facility, the businesses customer would not be aware that the invoices are subject to invoice discounting.
Invoice discounting can only be used by established businesses with strong credit control systems. It would not normally be offered unless a businesses turnover is over £600,000.