Invoice Discounting / Factoring explained

Mention “Factoring” or “Invoice Discounting” and many business owners may well raise an eyebrow.  The thought of selling their sales invoices to raise cash to inject into the business fills them with doubt and apprehension.  It still sometimes has the stigma of being “last resort” lending.

But is this stigma fair? Are the common misconceptions about factoring and invoice discounting still rife even with today’s economic backdrop ?

Unfortunately yes, and yes. They are still common and they are still misconceptions!

Many businesses are still concerned that these entirely relevant forms of raising funds may give the wrong impression about the state of their business. They fear people may leap to the conclusion that they are in trouble.

Yet many business owners and operators know how hard it is to get funding at the moment & should be re-assured that banks/funders simply wouldn’t lend to businesses on the brink of failure.  They lend to those they believe in and whose strategy for the business is positive and viable – not to lame ducks!

Another common fear is that customers may not want to trade with you if they see the business factoring its debts. In reality the message it sends is that you are well funded, have the confidence and support of a financial institution that sees hundreds if not thousands of businesses, thus demonstrating that you are ready for growth.

However, many providers recognise this fear and an increasing number offer a confidential service, giving the impression that all the communications are from you, but still providing excellent credit control support.

Also worth noting is the range of businesses that factoring / invoice discounting companies can support where traditional banks are actively trying to move away from difficult sectors such as service providers and the construction industry.

The key with both options is the flexibility for the facility to grow as your business grows.  It may be hard enough to get any form of traditional lending such as a loan or overdraft, but try going back asking for more every six months as your business expands and needs more cash, and you will find it an increasingly difficult task.

Not only could it be very hard to get, but they may well demand some form of personal security or charge on property, whereas the only security the factoring or invoice discounting company needs is on the sales invoices themselves. It’s like having invoices that are cash on delivery!

We can help you with:

  • Initial research into the market place and the options available to you
  • Building a proposition to take to one or more lenders, including supporting documents such as business plans and the financial forecasts etc
  • Driving through the application and credit approval stages to get as many forms of funding for you consider from our panel of funders
  • Managing the process from enquiry stage right through to the final draw down of funds
  • Ongoing reporting requirements such as providing management information or monitoring covenant levels, as well as monitoring the markets to monitor spot re-brokering opportunities

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