A Home Counties producer of organic fruit and vegetables saw their sales grow by almost 30% in the space of 12 months ...
Factoring
Factoring is a flexible funding and collection service which initially releases cash against the outstanding value of your existing debtor book and then ongoing against new sales invoices raised. This effectively bridges the cash flow gap between the issue of an invoice and your customer paying. In addition the Factoring company takes over responsibility for managing and collecting your customer debts releasing valuable staff and management time.
At commencement of a Factoring arrangement, which can be set up in as little as one week, an advance will be made against the balance of debts outstanding. The amount advanced is typically 85% of the balance but can be as high as 90%. You would then on an ongoing basis notify all new sales invoices, usually via the internet, to the Factoring company who then make further funding available. Normally this is done within 24 hours and again is typically at 85% of the value of the new invoices.
When the invoices are due your customer will make payment direct to the Factoring company who make the residual 15% of the debt available to you, less charges.
What does it cost?
Costs will be tailored to the individual size and requirements of your business and will be split between Service Charge and Discounting Charge:-
Service Charge - this is levied to cover the cost of administering the facility and will primarily depend on the size of your turnover, the number of invoices you issue and the how many customers you have.
Discounting Charge - this is effectively the same as an interest charge and is applied to the amount of money advanced to you. Quite often this will be cheaper than the interest rate charged on similar sized overdraft arrangements.
