- 04 Apr
Simple Explanation Of Factoring
This is a very simple explanation of factoring. For a detailed explanation of the full range of product variations please see our free guide to the different types of factoring.
A Simple Explanation Of Factoring
In very simple terms, factoring is a financial service for businesses. It provides two core services, and there are a number of additional optional extra services. The two core services are funding and credit control.
For a detailed explanation of how to select the correct product, see our Explanation Of The Factoring Product Decision Tree.
Finance is provided against your outstanding sales invoices. This can also be referred to as funding. This means that by using factor, your business cash flow will significantly improve as you do not need to wait for customers to pay, in order to access the cash that becomes tied up in outstanding sales invoices. Most factors will provide you with funding in less than 24 hours of raising your invoices.
The second core service is credit control. With an invoice discounting facility you don’t receive the credit control element of a factoring package. With a factoring service you receive the credit control element. This can however vary in terms of the quality, and extent of the service that you receive. It may be that the factor only chases the few largest customers on your sales ledger or it may be a fully comprehensive service whereby they chase every single outstanding invoice.
Beyond those two core services there are a number of other optional extras that may or may not be part of the facility.
Bad that protection is a service, similar to credit insurance, that protects you against customers failing and then being unable to pay you. Confidentiality is another variation on the core services.
Confidentiality means that your customers are unaware that a third-party is providing the credit control service. This is achieved by undertaking the credit control activity in the name of your company, using dedicated phone numbers and using your own branding on all correspondence. In this way, to the customer it appears that you are contacting them rather than the factoring company.
Export services may also be provided. These mean that at least the core services are provided in respect of your sales to customers based abroad. This may be an add-on to a domestic UK facility or it could be a purely export arrangement.
There have been some additional add-ons that some providers can include if required. These are things such as a payroll service, to manage your staff payroll. These can be a significant benefit to businesses, such as recruiters, who tend to deal with large numbers of staff.
List Of UK Factoring Companies
On our website we have a full list of all the factoring companies in the UK, and we can advise you regarding which provide which services.