Factoring and Invoice Discounting

Factoring/invoice discounting is a method of getting up front finance on goods delivered or services provided and invoiced to other commercial entities through a third party supplier (i.e. a bank or other financial institution whether corporate or independent). Typically within 24 hours you can receive an advance of up to 80 to 85% against an approved submitted invoice subject to the agreed credit limit on your account. Once the customer has fully settled the invoice, the remaining percentage (20 to 15%) less interest and fees payable to the third party supplier is then available for you to draw against.

Growth Capital performs its duties and responsibilities with utmost care. It provides factoring solutions which are convenient for different businesses. It provides a number of facilities effectively which includes:

  • Receiving funds without waiting for your customer to pay.
  • Removal of the administration burden of credit control (factoring only).
  • A useful way to manage cash flow.

In Factoring The third party supplier takes responsibility for your sales ledger maintenance and all credit control collections (recourse factoring) from issuing of statements/letters, telephone calls and commencement of legal procedures. In this instance your customers will be aware that you have outsourced your sales ledger, as your customers pay your third party supplier direct. The agreement may also include credit insurance which will protect you against any bad debts incurred by the business (non-recourse factoring) subject to an agreed excess on each claim. Recourse factoring is cheaper than non-recourse as you are taking the risk of bad debts on board.  Should your customer therefore not pay you will have to repay the advance on the invoices submitted to the third party supplier.

Invoice Discounting can be more attractive than factoring as you retain responsibility for your credit checking, sales ledger and credit control functions. As a result your customers do not need be aware that you are using the services of a third party supplier.  However, all payments received from your customer are paid directly into a bank account that is administered by the third party supplier. The inclusion of bad debt insurance remains an option with invoice discounting. It is essential with invoice discounting that you do have an excellent and well-established credit checking, sales ledger and credit control procedures and processes. The Invoice method chosen by Growth Capital is actually a much easier process and enables the customers to maintain a comfortable business principle.

Two standard costs are maintained i.e. interest and fees:

Interest – a percentage charge calculated daily and usually applied monthly – the percentage rate can vary anywhere between 1.5 to 3% over base rate (indication only) – these rates are comparable to those that are charged for a bank overdraft.

Fees – this is the charge for the credit management and administration of the service provided – the amount applied depends on your turnover, number of invoices raised and level of customers – the percentage fee can range from anywhere between (indication only) 0.5 and 3% of turnover (lower for invoice discounting, higher for factoring).

Benefits

  • Releasing up to 90% of the value of outstanding invoices within 24 hours
  • Funding can be secured without requiring other assets
  • Cash is freed up to either lessen cash flow problems or grow the business
  • Supplier invoices paid promptly will increase your power to negotiate discounts
  • Funding levels increase with your turnover
  • Both services are competitively priced
  • Factoring and invoice discounting providers often offer excellent business advice

The additional benefit of factoring is that it comes with a complete credit control and collection service, enabling you to focus time and resources on other areas of your business. An additional advantage of invoice discounting is that responsibility for credit control and debt collection remains with you and your customers are not aware of any cash flow problems you may be having.

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