Business challenges or failures in the UK are often attributed to difficulties in collecting money owed for goods and services, leading to a negative impact on cash flow. While maintaining a profitable business, the lack of positive cash flow can be detrimental.

One potential solution to address cash flow issues is seeking additional overdraft facilities from a bank. However, a more flexible and cost-effective alternative is to explore Factoring, Confidential Factoring, or Invoice Discounting. These financial services ensure payment of invoices, providing up to 90% of the invoice value within 24 to 48 hours. This approach allows businesses to keep their bank facilities available for other growth and investment needs.

At B Financial, we collaborate with major UK factors to tailor the most suitable scheme for each business profile. Our services include a unique confidential factoring option, maintaining discretion so that clients are unaware of the factoring arrangement – a feature usually associated with Invoice Discounting. The distinctions between these financial products are outlined below.

Factoring: Factoring offers immediate cash for invoices, along with sales ledger and collection services. It is an effective way for SMEs to transfer debt collection and ledger management responsibilities to a factor, swiftly receiving cash advances upon invoice issuance.

How It Works: The factor manages the sales ledger, provides credit control, and collects outstanding debts. Typically, 80-90% of the invoice amount is advanced, and the remaining balance, less charges, is paid upon customer payment to the factor.

Costs: There are service charges (0.60% to 3.0% of turnover) covering sales ledger management, collection services, and optional bad debt protection. Interest charges for cash advances are comparable to secured bank overdraft rates.

Types:  Recourse Factoring (customer payment risk retained by the business) and Non-recourse Factoring (credit insurance covers customer payment risk).

Invoice Discounting: Similar to factoring, but sales ledger management remains with the business, undisclosed to the customer.

Costs:  Administration charge (flat fee or percentage of turnover) and interest charge for cash advances.

Advantages:

• Instant Cash: 80-90% of invoices pre-paid within 24 hours.
• Sales Ledger Management: Handled by the factoring company.
• Growth Support: Replaces traditional bank overdrafts, growing with the business.

General Conditions:

• Contract Term: Typically 12 months.
• Trial Period: Some companies offer a trial period.
• Reputation: Work with reputable firms to maintain positive customer relationships.
• Personalized Service: Especially crucial for small companies.
• Export Factoring: Essential for businesses with international customers.
• Bad Debt Protection: Offered by many factoring companies.

FAQs:

• Charges: Service charge (0.6% to 3.0% of sales factored) and interest charge for cash advances.
• Cash Advances: Typically received within 24 hours.
• Invoice Amount Advanced: 80-90%.
• Factoring vs. Invoice Discounting: Factoring includes sales ledger management; Invoice Discounting keeps it in-house.

Glossary:

• Bank Overdraft: Alternative to factoring without credit management services.
• Credit Insurance: Protection against customer non-payment.
• Non-recourse Factoring: Factor bears bad debt risk.
• Recourse Factoring: Business retains bad debt risk.