Confidential Invoice Factoring Explained
Invoice Factoring enables you to get paid on your sales when you raise invoices, regardless of when your customer actually pays you and settles the invoice.
Factoring takes away all the difficulties of chasing payment on your invoices and helps remove the worries of not knowing when you might get paid.
Factoring is a great tool in avoiding cash flow problems. Poor cash flow is still the biggest killer of businesses.
How does Invoice Factoring work?
Once an Invoice Factoring facility is set up, you raise your customer invoice as per normal but present a copy of the invoice to the Factoring provider. The Factor (commercial finance provider) then advances you, the client, money secured against the value of the outstanding invoice you have just raised. Typically up to 90% of the invoice value can be advanced.
The Factor then arranges for collection of payments on your outstanding invoices. Most Invoice Factoring providers have dedicated customer service teams which are trained to contact your customers as a natural outsourced credit control / back office accounting function of your business.
By outsourcing the chasing of payments, more time is freed up in your business and for small companies without robust accounting systems missing payments and admin errors are reduced. Late payments are also reduced as the Invoice Factoring providers use specialist software and trained staff to keep track of invoice due dates.
Benefits of Invoice Factoring
The obvious benefit is unlocking the tied up money in your invoices. You may offer your customers 30, 60 or even 90 days invoice settlement terms, and assuming they pay on time, the value of your sales is still locked for those 30, 60 or 90 days.
With Invoice Factoring, you normally get advanced the funds the next working day.
Cash Flow is crucial to managing a business. Businesses that are in profit can still suffer and collapse due to poor cash flow and if you haven’t got enough cash flow to pay your own creditors when they fall due, technically, your business is insolvent.
Invoice Finance facilities like Factoring enable you to remove the worry of when your invoice will be settled, allowing you more freedom to manage the business, and importantly, concentrate on generating more sales.
By effectively removing the time lag between sales and payment, cash flow is significantly improved, and in cases of growth, the by product of this is that you don’t have to wait 30, 60, 90 days to get paid in order to buy more raw materials or pay other costs associated in fulfilling new orders.
What is different with ‘Confidential’ Invoice Factoring?
The basic principles of Invoice Factoring, explained above are still in use with Confidential Invoice Factoring.
You still raise your sales invoices as normal, and you still send the invoices to the Factoring provider. You still get advanced the agreed percentage value of the outstanding invoice and the factor provider still chases for payments.
The only difference is in how the Factoring provider introduces themselves to your customers. With normal factoring, the Factoring provider will use their own name; with Confidential Invoice Factoring, the factor acts as your own accounting department and uses your company name when contacting customers.
A dedicated telephone number for customers to call and arrange payments is set up and phone calls are answered using your company name
Why use Confidential Invoice Factoring?
Confidential Invoice Factoring is ideal for when businesses wish to keep the fact that they use Invoice Finance Factoring private, i.e. ‘confidential’.
In addition to being discreet, 'confidential invoice discounting' is a viable means of asset backed finance, when certain debtors have a ban of assignment meaning that the more traditional asset backed finance options are not applicable.
Up until the last 5 years or so, companies didn’t wish to let their customers know they were using Invoice Factoring and wanted to keep it confidential because of a misconception that their customers may have thought they were in financial difficulty.
However, the reality is that Invoice Factoring advances you monies against sales and with the aftermath of the credit crunch, more businesses have taken to using Invoice Finance than ever before. Even more indicative of its popularity is the fact that even the high street banks are now trying to move into the Invoice Finance market in preference to lending businesses money by traditional routes, such as commercial overdrafts and commercial loans.
Unlike commercial overdrafts and commercial loans, Factoring only uses the invoices you raise as security.
About Factoring Finance Ltd
Factoring Finance Ltd are a Merseyside based, independent Factoring, Invoice Discounting, and Commercial Finance broker with over 30 years experience and an extensive broker network serving the whole of the UK.
Not being tied to any finance provider means that our broker network will find the best deal for your business, not the commercial finance provider.
For a no obligation discussion about invoice finance such as factoring or invoice discounting give us a call.