What is factoring?
If you own a small to medium business and you rely on customers paying invoices within a 30 day period for your working capital, your cash flow is effectively tied up in those invoices. This limits growth and can cause problems when paying staff and suppliers.
Factoring is the process of releasing cash from invoices as soon as they are issued, allowing you to put the money to work where it is needed most.
How much cash can factoring release?
Factoring services can release up to 80% of the value of an invoice within a couple of days of the invoice being issued, typically you could receive cash advances within 24 hours.
How much does factoring cost?
Factoring is very competitively priced compared with other types of business finance. The costs are in two parts:-
1) A service fee, covering the day to day running and management of your sales ledger, usually between 1.5% and 2.5% of your turnover.
2) A Factor's Discount (interest) charge, which is charged against the funds advanced. This will usually be a fixed percent above the Bank of England base rate typically around 3%.
The only other cost is refactoring which is essentially the charge applied to debts which are over 90 days old, this is charged at 0.5%. By working closely with our clients it is our aim to ensure this charge is not applied.
Please note that this information has been extracted from Key Factors Ltd website www.keyfactorsltd.com. Last updated: August 2016