Key points

What to do when you need to use factoring or invoice discounting Factoring and invoice discounting key points summary.

•                Factoring and invoice discounting are becoming mainstream parts of business finance as banks shy away from overdraft funding.

•                The higher levels of advance that can be obtained from borrowing in this way can enable you to maximise your available funding (particularly when combined with other non bank sources – see the ‘How Much Can You Borrow?’ ready reckoner on page 18).

•                As debtor based finance, the level of cash available through factoring or invoice discounting will be directly tied to your trading performance, but not all debt will be fundable.

•                Factoring and invoice discounting differ in that factoring provides collection services as well as funding, whilst invoice discounting can be on a confidential basis.

•                There is a large market of active invoice discounters and factors which gives you the freedom to choose the funder that suits you. But the choice between different funders can be complex as:

  • you need to understand how the characteristics of your business from the nature of its sales to the location and nature of its customers may affect how much different lenders are willing to advance;
  • the approach of presenting costs can vary widely; and
  • you need to be able to make a judgement as to how efficient a lender will be.

•                Stock is generally difficult to finance but it can form part of an invoice discounting or factoring facility by way of an overpayment.

•                There are related services that may be appropriate for your business’s circumstances such as block discounting of future streams of income; or trade finance houses which can be used to fund the individual transactions such as the importation of goods for sale.

•                A reputable commercial finance broker or advisors such as ourselves with a good current knowledge of the marketplace can be useful in helping you to find the best products and lenders for your circumstances. Please contact us for a free and no obligation discussion.

See our Lender Directory for a list of Factors and Invoice Discounters

Information provided is copyright and subject to the Important Notice on the home page.

Of course the information contained in an article like this can never be a full statement of the legal position as the relevant laws are complex and liable to change. This article can only therefore be a general guide as to the issues involved and as these can have serious implications you should always seek appropriate professional advice on your own particular circumstances before taking any action.

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