At times a bank overdraft can be fairly restrictive, which as a result can slow the growth of your company. Invoice factoring is a good solution to this as there are less restrictions and cash is provided much more promptly.
The problem with overdrafts
With overdrafts, the bank issuing the facility usually places limits on business overdraft levels, which is typically based on the trading history of the company. Although this is advantageous in providing an injection of capital, there are also a number of drawbacks. For example, you may be concerned that the overdraft facility could be withdrawn at any time, especially in the current economic climate. Fortunately, this worry can be eliminated if you were to opt for invoice factoring as a way to improve the cash flow of your business.
An alternative avenue of business finance solutions is revolving debtor finance, such as invoice factoring, which will grow with a company’s sales each day. The only constraint is the amount of invoiced business transactions held by the company.
Benefits of factoring your invoices
- Cash is made available immediately without any consideration having to be made of your businesses credit rating.
- Many websites offer a factoring calculator which enables you to calculate the cost of factoring for your business.
- The use of a factoring calculator can give you a good idea of the cost of the factoring of invoices that you can compare against quotes provided by potential factors.
- There are no long-term contracts involved in factoring. You are able to discount as much or as little as is required within agreed parameters. A typical contract is 12 months, but some factoring companies can offer shorter terms – which is why it can be useful to compare a range of quotes.
- Unlike overdrafts, factoring facilities do not need to be renegotiated at any point – although if you continue to use a particular factoring company you can sometimes negotiate better rates or higher prepayments.
- Professional credit collection services are provided with factoring companies, as well as the use of a factoring calculator to inform you of their invoice factoring rates.
- The actual costs of factoring can be near to nothing, as factoring can reduce your overheads.
- Some factoring companies in the UK provide credit checking facilities of potential customers.
- If any business opportunities are to present themselves your company will have the cash on hand to take them.
- The increased flow of cash triggered by factoring invoices works to increase working capital, which in turn eliminates overdrafts and allows taxes and bills to be paid on time – in turn ensuring that your business does not incur any more debt.
Recognising that invoice factoring is a popular alternative, especially for smaller businesses, a lot of the big banks have started to offer factoring. Most notably, HSBC now offer invoice factoring and Barclays also offer a factoring service. However, their rates tend not to be as competitive as dedicated factoring companies.
If you are a small business looking to generate a quick and cost-effective cash flow, invoice factoring is definitely worth considering, especially if you would like to try a less risky avenue than a bank overdraft or loan.
If you are seeking a fast and free quote regarding the cost of factoring, Companeo can help.
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