- 12 Aug
Factoring Can Improve Profitability
Most people may assume that invoice factoring will come at a cost, and hence will reduce your profitability, however the opposite may be true.
How Factoring Can Increase Profitability
Using factoring may actually increase your profits and business' profitability. I noticed an interesting post the other day, suggesting that factoring can actually help your company become profitable, so I wanted to set out how that might work.
This is something that many businesses are unaware of, there are a number of different ways that factoring can actually help you to increase your profitability, rather than reducing them.
Outsourced Credit Control Service
As part of a factoring facility, you receive an outsourced credit control service. The quality of this service will vary greatly between providers but assuming that you Pick a quality provider, using an outsourced so this could mean that you don't need to employ credit control staff yourself (or as many credit control staff), and this could be a significant overhead for your business.
Cash Flow Improvements
Factoring can deliver a variety of cash flow benefits. We often find that a factoring company is able to achieve a better debt term than a client business can achieve themselves. This is due to the use of professional credit controllers, reputation (in some cases) and a systematic process to ensure that gets paid as quickly as possible. Factors know all the tricks to get paid quickly, like who to call in large organisations.
This can have a significant cash flow benefit for your business. For example, a business with a sales ledger of say £100,000 outstanding, and with debts being paid in 60 days (hence 100K is 60 days sales outstanding), each one day reduction in that debt could create a cash flow benefit of approximately a £1.6 K. This cash flow benefit could offset borrowing, reducing the cost of borrowing. We have clients that use just the credit control service only as they appreciate the value of this benefit.
The fact that you receive invoice prepayments, typically 85 to 95% of your invoice values, means that you will have a far greater amount of cash available to your business.
You can use this cash to solicit early payment discounts from suppliers. For example, instead of paying for services on a month-to-month basis, you may be able to secure discounts, typically c. 15%, by paying annually.
Trade creditors may be prepared to offer you discounts if you pay on cash terms rather than taking 30 days plus credit terms. The cash from a factoring facility could allow you to do this. These types of discounts will reduce your outgoings, subsequently improving your profitability.
We have put together a factoring benefits calculator that can demonstrate the possible cost savings, and in some cases deliver factoring that is cost neutral or even a boost to profitability.
- 31 Jan
Producing A Business Plan To Support Your Finance Application
We were just talking about the number of new applications for business finance that we are seeing but commented how suprising it is, the number of companies that apply for facilities of £250K+ or more, without providing any kind of business plan.We regularly see applications without a business plan, financial projections or forecasts being provided to the finance company that the prospect are...
- 30 Dec
Invoice Finance Termination Guide
Termination is the process by which either an invoice finance company, or their client terminates the receivables finance facility that exists between them. The circumstances under which termination occurs can vary, and are explained in this guide to invoice finance termination.This invoice finance termination guide is intended to help companies that have been given notice of termination by...
- 12 Jul
Do You Need An Invoice Finance Sales Visit?
Times have changed, when I worked for the invoice financing arm of Barclays, our sales people always visited new prospective clients, and these visits were the conduit to acquiring new business.The titles of the sales team vary between organisations, for example, "Business Development Manager", "Business Development Director" and "Sales Manager/Director" are often used interchangeably - but the...
- 29 Apr
Guide To Moving Invoice Finance Companies
Moving invoice finance companies is something that clients can be very cautious about, often because they anticipate a lot of hassle and paperwork. That will not necessarily be the case, especially if you don't have hundreds of customers, but we have researched what customers often fear might happen when they move providers, so that we can put those fears to rest.We have also put together this...
- 20 Feb
Invoice Finance For Security Companies
Security companies that are providing manned guarding services often have significant payroll obligations to meet in order to pay their staff, in many cases before being paid for the jobs that their staff are undertaking. In some cases staff have to paid weekly, whilst customers expect to enjoy credit terms of 30 days or even more.The gap between having to pay staff and getting paid by customers...
- 19 Aug
Invoice Finance Or Factoring With No Minimum Criteria
In the past, there were minimum size criteria applied to businesses that were seeking invoice finance or factoring. Different providers would set the minimum size criterion at different levels, but used to reflect a fairly substantial volume of turnover, in order to make a facility viable.This practice is no longer the norm in all cases, with the emergence of selective invoice finance. A...
- 16 Jul
A List Of All The Methods Of Funding A Business
If you are starting a business, or you need more capital to expand an existing business, you may be interested in understanding the full list of all the funding options that are available to you. Below I have compiled a list of all the methods of funding a business in the UK.FIND OUT ABOUT THE OPTIONS WE CAN HELP WITHThere will be many products that fit under each of these categories, however I...