Debt Factoring

Debt Factoring can sound complicated, but it’s actually a very simple, practical way for businesses to get at the money they’ve earned, but haven’t been paid. It helps to ensure business viability, it encourages growth, and it takes the unpredictability out of invoicing.

Factoring works on the premise that you’ve earned it, so you’re entitled to it. For the most part, small business owners know that no matter how efficient they are, or how good the service they provide; they’re always reliant on others to secure their success. They rely on their suppliers for materials; they rely on their customers for prompt payment and they rely on trust, above all else. But what happens when that trust is misplaced? What happens when customers don’t pay on time? In too many cases it means that working capital is strangled out of the business. In too many cases it means the business can’t operate; business close.

The greatest irony is that, for most of them, it wasn’t for the want of orders. It wasn’t even for the want of sales. It was simply that they were unable to access the money that they’d legitimately earned. Late payment doesn’t just cripple businesses; it kills them.

Debt factoring is a solution. It’s a bona fide way of getting turnover turning, and of keeping businesses in business. No fuss, no mess; no more increasingly desperate phone calls to late paying clients.

Factoring doesn’t come free; but at least you can offset the cost against the alternatives. After all, working capital is king: it doesn’t matter how many orders you get, if you don’t have the manpower or the equipment to honour them, they’re useless. If you can’t access the money you need to advertise your services, you’re nowhere. If you can’t even afford to just do your job, you’re redundant.

Fortunately, debt factoring companies make it easy. Provided your business operates on credit terms, and you can satisfy the factoring agent that you’re a viable business with a viable plan; you’ll almost certainly be approved. In practical terms, that means that you instruct your clients to pay the factor, who then takes up responsibility for chasing payment. In monetary terms it means that, upon receipt of a copy of the invoice, the factor will deposit an agreed sum, which can be anything up to 85% of the value of the invoice, directly into your bank account, usually within 24 hours.

When reviewing prospective debt factoring schemes, make sure you know and accept the exact costs, as described in your agreement. Ensure you are given a day-to-day contact, and make very sure you’re prepared to be signed into the terms of agreement for the requisite timescale. You’ll also need to verify insurance requirements against bed debtors and check just how much say the factor will have in approving your customers. Once you’ve satisfied yourself on these requirements, you’re ready to roll; you’re ready for the cash to start rolling in.

In purely pragmatic terms it takes a weight off. Just knowing that you’re going to be paid immediately upon delivery of invoice means that every order counts; every order contributes to the ongoing success of the business. In the short term you get improved viability; in the medium term you get a more comprehensive overview of actual business success, as opposed to projected figures and virtual sales! It’s ‘cash in hand’ for the business!