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The Ultimate Guide to Invoice Factoring
 

The Ultimate Guide to Invoice Factoring

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Everything you need to know to compare a factoring deal with MarketInvoice's unique product.

Everything you need to know to compare a factoring deal with MarketInvoice's unique product.

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    The Ultimate Guide to Invoice Factoring The Ultimate Guide to Invoice Factoring Document Transcript

    • Contents What is factoring? .........................................................1 Why would a business use factoring?...........................2 Who uses factoring? .....................................................4 What are the costs of factoring? ...................................5 Factoring- Frequently Asked Questions (FAQs) ...........7 In conclusion.................................................................8
    • The Ultimate Guide to Invoice Factoring Here at MarketInvoice we often get asked the question: “Isn’t what you guys do basically factoring?” Well, no- we’re not a factoring company. We’re a much better way of doing invoice finance, without contracts, debentures, personal guarantees or hidden fees. Factoring is much more old-school. It’s been around for millennia, having been used 4000 years ago by the ancient Mesopotamians. Yet it’s still a widely misunderstood product, and one that several banks have been accused of mis-selling. So, to shed some light on this product the MarketInvoice team have put their heads together to provide you with this- The Ultimate Guide to Invoice Factoring. What is factoring? Factoring is a form of invoice finance, where businesses sell their entire accounts receivable book to a finance provider. Businesses use factoring to get a cash advance on their unpaid sales invoices (typically between 60-95%) as soon as they are raised. Using factoring means that they don’t need to wait for the customer to pay, which can take between 30-120 days. The factoring company takes over the credit control for all invoices and, when payment is made, pays the business the balance on the sold invoice, minus any fees. Factoring is not a type of loan- clients are simply using it to get access to cash they’re already due, rather than additional capital.
    • The Ultimate Guide to Invoice Factoring Why would a business use factoring? If you’re a business that sells to other businesses, it’s likely that you’ll recognise the need for invoice finance. B2B sales come with a caveat. When a project or contract is agreed, the supplier will send their new customer an invoice for payment when the services or products have been delivered. So far, so good. But that invoice can often have much longer payment terms, meaning the customer doesn’t need to pay on delivery. Average payment terms range from 30-60 days in the UK.
    • The Ultimate Guide to Invoice Factoring Inevitably, this process leads to cash flow issues for the supplier, who - don’t forget - stumps up cash for the goods and services that have long since been delivered without seeing a penny for months. It’s a situation that’s worse for the suppliers of large corporate businesses like the supermarkets or department stores. Many of these corporates have payment terms as long as 120 days- imagine how crippling waiting three months for payment could be to a small business like a farm or a bakery. Not only have they already paid for their goods to be delivered, they’re also having to fund production and delivery of other orders in the meantime. It’s a vicious circle. That’s where MarketInvoice or other invoice finance providers can come in to help. Invoice finance gives those suppliers a big chunk of the funds due to them upfront, so they don’t have to wait months for payment.
    • The Ultimate Guide to Invoice Factoring Who uses factoring? According to the Asset Based Finance Association, the industry body, the top six sectors that use invoice finance are:  Distribution and logistics  Services, such as media, recruitment or consultancy  Manufacturing  Transport  Retail and wholesale  Construction According to ABFA’s latest figures, the vast majority of the 43,000 businesses that use invoice finance have a turnover of under £5m. 276 businesses with a turnover of over £100m also used invoice finance to help with cash flow. The reality is that a huge variety of businesses can use invoice finance products like MarketInvoice or factoring to accelerate the payment of invoices. If your business is suffering because you have to wait for invoices to be paid, there’s more than likely a service out there to suit.
    • The Ultimate Guide to Invoice Factoring What are the costs of factoring? Factoring providers have earned themselves a less-than-perfect reputation for costs and hidden fees. Rates vary massively depending on a number of factors, including provider, business size, debtor book quality and length of contract. The initial difficulty when comparing invoice finance options is that each provider tends to quote on different terms, using different names for each of the fees involved. Here’s a bit of a glossary, to help if you’re looking at factoring vs. MarketInvoice: Service Charge A percentage of each invoice that the factoring company takes as a fee, usually subject to a monthly minimum threshold that varies between providers. Discount Rate An annual rate applied to all funds advanced under the facility. It’s not technically interest, but works in the same way- check the rate before you sign the contract. Administration Fee A one-off setup fee charged to implement the facility. Legal Fees Some factoring companies charge fees for legal advice, or security fees to put a charge in place over the business. Re-factoring charges If invoices remain unpaid after a certain amount of time some factoring companies will charge an additional fee.
    • The Ultimate Guide to Invoice Factoring Same day advance fee If you need money advanced on the same day there may be an additional fee. Termination Fee If your business decides to leave the factoring facility before the contract’s ended you will most likely need to pay a termination fee. Compared to factoring, MarketInvoice’s fees are simple and transparent. We don’t charge a whole ream of complicated fees- if you use us, you’ll see the cost of finance upfront. Unlike factoring, MarketInvoice doesn’t require your business to sign up to a long contract. You can sell invoices one at a time online, as and when you need the finance. We charge two fees: MarketInvoice processing fee This fee is our equivalent to a ‘service charge’. It’s a one-off cost as a percentage of the invoice that you’re selling- the average processing fee on our platform is 1%. Investor fee This fee goes to the investors that buy out your invoice, and again is a percentage of the invoice that you sell. However, this fee applies every 30 days that the invoice is outstanding. The average investor fee on our platform is 1.5-2%. Because ours is a pay-as-you-go service there are no termination fees, legal costs or setup fees. If you’d like to compare a factoring quote against a bespoke MarketInvoice quote, and we can helpget in touch with our team you understand the costs involved.
    • The Ultimate Guide to Invoice Factoring Factoring- Frequently Asked Questions (FAQs) Most factoring companies will, as part of their service, take on your credit control and chase your customers for payment on your behalf. That’s because their priority is getting paid as quickly as possible, and they don’t want to risk a delay by leaving it to you. What many businesses dislike about this approach is that they lose control of a key part of their precious customer relationships. If their customer gets chased for payment too heavily it might make them think twice about doing business with you again. With MarketInvoice you’re still in control of your client relationships- we don’t take on your credit control. Factoring can be associated with distressed businesses since it’s a form of finance that’s more readily available if a business has a poor credit history. Some factoring companies have even been linked to insolvencies, since their hidden fees and termination fees can force otherwise solvent clients out of business. However, many businesses that use invoice finance and MarketInvoice’s service are exactly the opposite of distressed- they’re successful and growing fast. Growing companies can have real problems with cash flow, and invoice finance can provide the flexibility that’s needed. Do factoring companies need to take on my credit control? I’ve heard that businesses who use factoring are normally in trouble- is it a sign of distress?
    • The Ultimate Guide to Invoice Factoring Factoring costs can vary massively, and some providers are more expensive than others. Do a straight comparison with bank loan costs and invoice finance can be fairly competitive. MarketInvoice’s costs are described upfront before every invoice is sold. What’s more, our clients enjoy lower charges after trading more invoices on our platform, so the cost of finance gets cheaper. Isn’t factoring really expensive?
    • The Ultimate Guide to Invoice Factoring MarketInvoice vs. Factoring Factoring  Transparency See exactly what you’ll pay before selling an invoice  Typically involves a long list of hidden fees- read the contract carefully before signing  Flexibility Use us selectively, only as and when you need to  Factoring locks you into a contract which can be as long as 3 years, with termination fees if you want to leave early  Speed Register, sell invoices and receive funding in 24 hours  Factoring facilities take days or weeks to set up since the provider needs to assess the entire debtor book  Funding Certainty 100% of invoices are funded in full, often instantly  Invoices are always funded, although the funds can often take days to arrive in your account  Stress-free No debentures, no personal guarantees, no lock-ins  Typically factoring contracts involve debentures or personal guarantees, or both. We hope you’ve found our Ultimate Guide to Factoring useful. Now you know why we think it’s important to tell people that MarketInvoice isn’t a factoring company- although we provide invoice finance, we’re very different. If you’re currently looking at factoring vs. MarketInvoice, we can help you compare the costs involved and talk you through any quotes you’ve received. Contact our team for more information >>>
    • The Ultimate Guide to Invoice Factoring