what are debt factoring and invoice discounting   click to expand

With Factoring & Invoice Discounting you receive up to 95% of the value of your invoices immediately instead of waiting to be paid by your customers. You pay a small fee to the factoring company for this up front finance but also receive a large number of other services which save you money. The different types (describe below) allow you to choose between using the additional services of the company (factoring) or retain more control over managing your invoices / pay less in fees (invoice discounting). With invoice discounting you can also choose whether you want your customers are informed that you are using the service or not. Factoring / invoice discounting have many advantages over and above the finance aspect which result in substanital cost savings to the business and are explained fully on this site. Additionally the ffinance itself is also normally easier to obtain than other forms of finance as it is the credit worthiness of customers on which the finanace is based and not your comany. This is one of the advantages as finance can be secured without risking valuable business assets as collateral.

  • Debt Factoring (Non-Recourse)
  • Debt Factoring (Recourse)
  • Invoice Discounting (Confidential)
  • Invoice Discounting (Disclosed)
  • Video

With Factoring you receive Finance (up to 95% of the value of your invoices) and services (sales ledger administration, debt collection and debt protection). Non recourse-Factoring refers specifically to factoring that includes debt protection


The Debt Factoring Company

Pay up to 95% the value of your invoice Protect you from bad debts
Manage your sales ledger for you Collect payments for you
Grow with your business No constantly renegotiating loans / overdrafts
Easy to forcast & calculate costs Provide huge savings

Factoring Costs | Factoring Savings

Recourse Factoring is the same as non recourse factoring except that you do not receive bad debt protection and so have a lower service charge

Offer lower service charges No bad debt protection

Factoring Costs | Factoring Savings

With Invoice Discounting you still receive the finance, but manage your sales ledger, collections, credit control and bad debts (optionally) in return for a very low service charge (around 0.5%). Confidential means your customers are not told you are using an invoice discounting facility.

With Invoice Discounting you manage your sales ledger, collections, credit control and (optionally) bad debts in return for a very low service charge (around 0.5%).

Pay up to 96% The value of your invoices Very Low service fees (0.5 - 1.5%)
You manage your sales ledger You manage your collections
Bad debt protection ( for added service fee) Confidentiality about using Invoice Discounting
Grow with your business No constantly renegotiating loans / overdrafts
Easy to forcast & calculate costs Provide huge cost savings
       
Our quotes include award winning companies that have unique and industry leading systems that enable much less stringent criteria for obtaining invoice discounting.

Invoice discounting can be harder to obtain as the debt factoring company is reliant on your companies ability to professionally manage the sales ledger.

Invoice Discounting Costs | Invoice Discounting Savings

Disclosed invoice discounting just means customers made aware that you are using an invoice discounting facility.

Customers not told you are using invoice discounting.

Invoice Discounting Costs | Invoice Discounting Savings

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The Costs of Factoring & Invoice Discounting   click to expand

This is a typical example of the fees that you will pay and the finance you receive. It is based on a turnover of £1 million, but feel free to put in your actual turnover for an estimate of your costs / payments. You can move the sliders and by putting in the values from your free quotations, (which you will receive when you fill out our factoring / invoice discounting quotation form at the top of this page). This way you have an easy way to compare it to other forms of finance. Finally don't forget to estimate the potential savings (below) as well as the costs by using our easy to use interactive charts. Full explanations of each term is given, by rolling over the terms below.


Advance Payment | Service Payment | Interest Payment | Rebate Payment

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IMPORTANT:- Your INTEREST FEE will be much LOWER if you don't use all your advance payment at once. YOU ONLY PAY INTEREST ON WHAT YOU USE (like an overdraft facility).

IMPORTANT:- SERVICE FEES are much LOWER with invoice discounting (as you receive less services).

The Savings of Factoring & Invoice Discounting   click to expand

This is a typical example of the savings that you could make, based on a turnover of £1 million. Full explanations of each saving is given by rolling over the terms below.

Bad Debt or Credit Insurance | Renegotiating Overdrafts or Loans | Supplier Early Payment Discounts | Sales Ledger Admin & Expenses |
Debt Collection Admin & Expenses | Credit Control Admin & Expenses | Open Item Accounting | Debtor Days Reductions | Interest Savings

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Glossary   click to expand
Undergoing maintenance

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With Factoring your customer invoices are sold to a factoring company in exchange for finance and services (although there are significant added benefits & cost savings as well). With invoice discounting, again you receive money for your invoices but you manage your sales ledger and so it is slightly cheaper (you are literally just paying for finance like an overdraft, but again with significant added benefits & cost savings).

Interest Fee Savings

Your Interest Fee will be much lower if you don't use all your advance payment at once. You only pay interest on what you use (like an overdraft facility)

Debtor Days Reductions

Factoring companies are specialists at administering the collection of debts. Efficiencies in this area leads to a reduction in debtor days, which saves you money because you are paying less in interest if your customers pay invoices sooner.

Open Item Accounting Savings

There are significant cost savings associated with using an open-item, instead of a balance-forward accounting methodology.  Further even with businesses that do use an open-item approach, they frequently do not have the time and resources to enjoy the benefits of the system. For a full and detailed explanation on this click here for an extract taken from ‘Salinger on Factoring’ (2005, p32).

Credit Control Admin & Expenses

Labour and expenses associated with credit control.

Debt Collection Admin & Expenses

Labour and expenses associated with debt collection. 

Sales Ledger Admin & Expenses

Labour and expenses associated with sales ledger admin

Supplier Early Payment Discounts

Standard early payment supplier discounts are 2% for payment within ten days. This one saving alone could pay for all factoring service fees. Of course a good negotiator may be able to achieve better discount terms than typical industry standards.

Renegotiating Overdrafts & Loans
Renegotiation: overdrafts & loans require constant renegotiation Business plans: frequently have to be written to secure loans
Risk: core company assets have to be risked as collateral No Guarantee: that finance will be secured making long term planning difficult
Focus: is taken away from the business at inconvenient, important, high pressure moments. Renewal fees: Overdrafts have renewal fees
Overdrafts Recalls: Overdrafts can be withdrawn and recalled at any time and without notice. High Salaried Personnel: frequently required for renegotiating overdrafts & loans
Supplier Relations & Credit Rating: can be risked if finance cannot be continuously secured.  Loan Repayments: begin immediately, so finance may not be available for the full time period required, especially if business conditions change.
Balance Sheet: Overdrafts & loans don’t look as good on the balance sheet.  With factoring, cash is recorded instead of accounts receivables and there is only one debtor.  Many large companies use factoring purely for this reason (salinger 2005, click for extract).

There are therefore significant savings and advantages to factoring over and above the labour and expenses associated with continuously securing and renegotiating an overdraft or loan.

Bad Debts or Credit Insurance

Losses associated with bad debts or costs associated with credit insurance are saved with non-recourse factoring, as the bad debt protection is offered as part of the service

Rebate Payment

You receive a final payment, which is the full value of the invoice minus the advance payment, the service and interest charges.

Interest Fee (Also called:- Finance Charge, Money Charge, Discount Charge)

Interest is charged on the advance payment.  But only on the money that you use (like an overdraft facility). 

Service Fee (also called:- Factoring commission, Administration Charge)

There is a charge for the factoring services (debt collection, sales ledger administration, credit control, debt protection).  This is how the factoring company makes their money.

Advance Payment

You receive an advance payment which can be anywhere between 70% to 90% of the value of the invoice