Article The Benefits Of Factoring For Small Businesses And New Startups

This article discusses the benefits of invoice finance through factoring from the perspective of a small business or  new startups that have just started trading.

When starting a new business finance for cash flow and working capital can often be difficult to access, particularly if you are a phoenix business. Our recent survey found that 31% of new startups said that they had finance restrictions when they started and of those with funding restrictions 74% were using a traditional bank overdraft.

Banks tend to look for a profitable trading history and tangible assets against which to secure any lending which can limit the amount of overdraft or loan funding available to new startups and small businesses. This often excludes the small business or new start company from accessing enough funding as they tend to lack both! There are alternative forms of finance that are ideally suited to small businesses or newly formed companies.

53% recommend invoice finance as a source of funding for new startups.

The Benefits Of Factoring

Small business factoring can be the perfect solution, providing you know where to look. Factoring releases the funds tied up in a company's sales ledger and this is an asset that even a small or new startup business will have. Typically, a factoring company will release up to 85% of the value of outstanding invoices which can equate to a significant cash injection for any business.

Factoring companies do not tend to be overly worried about the financial trading history of a business as they look to the quality of the outstanding invoices for comfort. This means that a small or startup business is on a level playing field with larger businesses.

Credit Control & Invoice Collections

There can also be other benefits that a small business can derive from factoring. Credit control and collection of the outstanding sales ledger will often fall to the prime mover who in many cases would rather spend their time finding new customers rather than chasing existing customers for money. The factoring company may be able to assist. They can provide a collections service using their own staff so that the small business can outsource the sales ledger collection and sales ledger management functions.

Outsourcing this the sales ledger management may not be to everyone's taste - some businesses want to keep control of this function. There are factoring products on the market that will allow even small and new start businesses to retain control of their credit control activity if they want to.

Single Debtors Or Prime Debtors

Another issue that small and new start businesses frequently face is the prospect of a major or prime debtor, or prime debtors. These are debtors that represent a disproportionate percentage of the businesses total sales turnover. Often in the early stages of trading a business may only have a single or a couple of debtors. Once again, there are factoring companies that will be able to assist with single debtor factoring. In some cases it can even be possible to find a factor that is prepared to allow their client to choose specific invoices against which they wish to raise finance, this is known as selective factoring.

Summary, Price & What To Do Next

The key objective of many small businesses is to grow. Factoring is all about enabling growth through flexible finance that grows in line with your sales ledger. As the business raises new invoices so the factor makes funds available against them. This funding enables the business to pay suppliers promptly (in many cases negotiating discounts for cash payments) or to invest in activities such as marketing and promotion of their business to new customers.

In summary, factoring can be the solution for small and new startup businesses releasing a stream of flexible, growing funding without the need for an established trading history or tangible assets as security.

Price varies between providers, there are fixed fee services available which can start from around £3,000 + VAT per annum (paid in monthly installments). To find out the price for your business or to speak to one of our expert advisers for advice, in confidence and without obligation: Call Sean on 03330 113622 or complete an: ONLINE QUOTATION SEARCH REQUEST

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Examples of just a few of our finance partners:

igf
lloyds bank
inksmoor
hitachi
ashley
catalyst