Factoring Companies UK -
Huddersfield, Wakefield, Leeds, West Yorkshire

What can factoring do for my company?

Factoring involves the provision of finance against security taken in the form of trade debts. In addition factoring provides a sales ledger and credit control service. In some instances bad debt protection can be provided.

Factoring is only appropriate to businesses who are trading businesses and are offering credit terms to their customers. A factor will provide up to 85% finance against invoices and in this way can bridge the gap between the raising of an invoice and the payment of the invoice by the customer. In this way factoring reduces pressure on overdraft and gives the business immediate working capital on the raising of an invoice. Factoring is much more suitable to a business than an overdraft as it does not need to be reviewed by the bank and re-agreed as the business progresses. Instead the Factor simply agrees to advance a percentage of each invoice, immediately upon receipt.

In practice as an invoice is raised it is assigned to the factoring company. The original is sent in the normal way to the customer and a copy is sent to the factoring company by way of notification. The factor will then issue an acceptance of the invoice and issue funds for the agreed percentage of the invoice immediately. Depending of the type of agreement the factor will then enter the invoice in to a customer account. The factor will then send periodical statements of account to the customer and will eventually collect the payment when it falls due for payment. As soon as payment is made the factor will pay over the remaining percentage of the money due, less the factor’s fee and any interest due on the advance made when the invoice was factored at outset.

Types of Factoring:

Recourse Factoring….Finance is provided against the security of trade debts up to 85% of the value of items appearing in the sales ledger. The factor is responsible for the administration of the sales ledger and chasing of overdue accounts for payment. This is the form of factoring most commonly used. The advantage to the business is that the sales ledger work is out-sourced to the factor. This frees up valuable management time allowing the business to concentrate on more important areas of their business. In this form of factoring if the customer fails to pay the factor has ‘Recourse’ to the client company for that invoice to be paid. Often these invoices are tagged on to later invoices to the same customer.

Non-Recourse Factoring….As above but with the Factor providing bad debt protection. Usually a limit on the credit available to each customer will be made.

Confidential Invoice Discounting…..Again finance is provided against the security of trade debts up to 85% of the value of the sales ledger. In this type of arrangement the customer is unaware of the arrangement as no disclosure is made in the invoicing chain. The client Company has the responsibility of collecting payments on behalf of the factor and paying these monies in to the factor’s bank account.

Disclosed Invoice Discounting…….As above but with the notification of the arrangement being made by way of an assignment clause on each invoice.