Tradespring Limited

ARTICLE - THE BENEFITS OF USING FACTORING SERVICES

This article is about the benefits of using a factoring service.

Factoring is a long established method of raising finance against the outstanding sales ledger of a business and accessing a number of other services. The services that a factor (another name for a factoring company) offers normally fall into a number of categories:

Prepayments against invoices
Credit control services - assistance with the collection of outstanding invoices (in some cases this can be optional)
Non recourse bad debt protection (this is optional)
Administration of the sales ledger

There are a number of benefits that arise from these services:

Prepayments - make available cash against your sales invoices immediately they are raised (often up to 95% or even more in some cases). This means that you can use that cash for any purpose within your business but possible uses include purchasing further stock and raw materials and negotiating supplier discounts as you are now able to purchase on cash terms. The effect of starting to use factoring can be a large initial cash injection as the factor releases 90% of all your outstanding invoices. For example, a sales ledger of £100,000 could release £95,000 at a 95% pre payment. The remaining 5% is passed onto the factors client once the debtors pay (less the factors charges for using the service). This initial release can give rise to a significant amount of cash being suddenly available to the business.

Credit Control Services - by taking over the laborious task of collecting in the outstanding sales invoices the factor removes the work from their client. In many cases, a business will employ either a part-time or full-time member of staff or book-keeper to undertake this role. That person's time can either be freed up or the business can reduce the number of staff required and take the cost saving that way.

Non Recourse Bad Debt Protection - not all factoring users take advantage of the non recourse factoring option but those that do can find it invaluable. The factor will vet all prospective new customers for you (saving you time and money spent on credit reports such as Dun & Bradstreet or Equifax) and they will allocate a credit limit for the debtor. Providing you don't allow the invoicing outstanding to exceed the factor's credit limit your invoices are protected. In the even that the debtor fails to pay you (you need to refer to the factor's agreement for the exact terms of the cover provided) the factor will credit your account with the value of the invoice at a designated time. This means that you can take on customers without having to worry about whether or not you are going to get paid.

Sales Ledger Administration - as part of the factoring service, the factor will run a sales ledger for you based on the invoices that you raise and copy to them (either by post or electronically through invoice upload). Many factors provide an electronic link that you can use to view these invoices removing the need for you to run a separate sales ledger.

Overall, it can be seen that there are a number of important benefits that factoring can deliver all of which contribute to improving the cash flow of your business. If you would like to speak to a friendly adviser about finding a factoring service we would be delighted to help. Just call us and we will take care of everything for you.

Call us on: 01892 785947
or email: info@tradespring.co.uk

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