- 19 Apr
Below I have set out some factoring examples, so that you can see exactly how the product works.
Below are a variety of examples of situations where factoring can and a fit your business.
Releasing Working Capital
If you are not currently using the product, any outstanding customer invoices can be immediately turned into cash, boosting the working capital available to your company.
A good example of this was a recent case where a company needed to raise some finance in order to buy out one of the company directors. We were able to use factoring, despite this company operating within the construction sector, to release that cash for that purpose.
A worked example of how the funding operates, is as follows. If you have a sales ledger of say £100,000 of outstanding customer invoices, a factor may be able to release say 85% of that value to you immediately i.e. up to £85,000, as a cash lump sum. This is explained in much more detail in our free guide to how factoring works.
Avoiding A Bad Debt
Another good example of why are factoring can be beneficial is in preventing your company from suffering a bad debt because a customer becomes insolvent. This may be particularly poignant at present as there have been a spate of high profile, high street retailers entering into CVA arrangements (Creditors' Voluntary Arrangement) - an insolvency procedure that can result in the creditors receiving less than the amount that they were due from their customer.
We have arranged a number of factoring facilities for businesses within the recruitment sector. In many cases, they are dealing with RPO organisations. These are large recruitment organisations that deal with a large number of smaller recruiters, in order to simplify the process for the ultimate customer - which tends to be a large organisation.
In some cases we have arranged non-recourse factoring facilities for such clients, so that they are protected against any potential insolvency related failure, of these RPO organisations. If such a failure should occur, providing they have traded within the allocated credit limit, their income from outstanding covered invoices will be protected.
Spot Factoring To Avoid Minimums
Another good example is the use of spot factoring to avoid minimum charges. There are case studies on our website which explain how we have helped customers move to selective factoring, in order to avoid having to pay minimum fees that can be associated with full ledger facilities.
Examples Of Costs
If you are seeking to learn more about the cost of factoring, we have extensive information regarding pricing, for particular factoring examples.