Factoring

Factoring can provide an excellent and flexible way to finance a growing business, especially where growth is directly linked to sales invoices rather than the balance sheet.

Factoring involves the assignment (sale) of a business’s sales invoices to a factoring company in exchange for an agreed initial advance of up to 90% of the Gross Approved Invoice value (though 70-80% is more usual). Once the debtor has paid the factoring company, the balance is payable to the client after deduction of the factoring company’s charges.

In addition to providing the initial advance facility, the factoring company provides a sales ledger management service. This comprises:

• Production of a sales ledger (distinguishing Factoring from Invoice Discounting)
• Dispatch of statements to customers
• Credit control collections via letter and telephone in accordance with terms of trade

Whilst many prospective factoring clients wish to retain control over their sales ledger management, it’s often the case that the factor will only provide the initial payment facility if they can manage the sales ledger. This is particularly applicable in the case of newly established businesses, companies in weak financial positions – or those with a high reliance on just one or two debtors

Factoring can be on a Recourse or Non-Recourse basis: Recourse Factoring requires that responsibility for debtor default remains with the business, whilst in Non-Recourse Factoring, the factoring company accepts the risk for bad debts and protracted payment default against approved customers.

At BTG Commercial Finance, we have extensive experience in helping clients find the precisely the right Factoring partner to match their individual needs.