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You may or may not be familiar with the terms invoice factoring, invoice discounting or recruitment factoring, but many companies use such services as it allows them to turn outstanding invoices into immediate cash. By factoring your invoices you can raise up to 90% of their value and have the money directly into your bank account within 24 hours.

Invoice factoring usually involves the factoring company helping you to manage your sales ledger and credit control, this includes following up unpaid invoice and bad debtors. Invoice discounting works on the same principle, except that you manage your own sales ledger and so this aspect of your cash flow remains confidential and isn’t revealed to your clients.

Obviously there are fees involved, usually a percentage of your company turnover. Releasing cash this way allows you to keep on top of cash flow and outgoing payments, ensuring your credit rating is secure. It also provides you with the means to continue to invest in and grow your company. Factoring is competitively priced when compared to bank overdrafts and loans.

So who is factoring for?
The suitability of factoring and associated costs for your business depends upon the size and nature of your business. However, contrary to what you might think, factoring is not just for larger companies . Small and medium sized businesses can greatly benefit from this kind of accelerated cash flow for obvious reasons.

Most business sectors will be considered and the majority of businesses, even new starts, may be viable for factoring.

To contemplate you own suitability think about whether you are:

A business that need cash to help their business grow.
A business that is expanding, or that is looking to buy other businesses.
An organisation that wants a credit control department that does just that ? controls credit and has the experience and ability to credit check clients and chase debts effectively.
An entrepreneur or MD that juggles a wide range of roles such as business manager, salesperson and credit controller.

A company or individual that wishes to remove the emotions from what can be a difficult part of the relationship with your clients. Particularly if they are a larger customer you want to “keep on side”.

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When should you think consider factoring as a serious option?
If you are concerned at the speed at which you are being paid.
If you are too busy “running your business” to collect money you are owed.
If you always seem to be hitting your overdraft limit and/or incurring bank charges.
If you are concerned about paying your own suppliers on time and the impact this could have on the company credit rating.
If you company development is becoming restricted or has stalled, due to lack of consistent cash flow.
If you are worried about bad debts and would like the option to have the protection that can be provided by factoring.
If you want to expand, but your bank will not help.

The factoring process starts with due diligence. This involves checking the credit quality of your customers, checking anything unique to your industry or transactions, and determining your true funding needs.

There are certain sectors that benefit from invoice factoring more than others. For example, recruitment factoring for recruitment agencies ensures that you will always have the funds available to pay your temp workers on time.
Whatever your industry, if you feel any of the criteria above may apply to you, it’s worth considering invoice factoring or invoice discounting as a way to accelerate your business cash flow.