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Factoring and invoice discounting



Overview
 

Factoring - also known as 'debt factoring' - involves selling your invoices to a factoring company. In return they will process the invoices and allow you to draw funds against the money owed to your business. They will also take responsibility for your sales ledger.

You can use factoring to improve cashflow but it can also be used to reduce administration overheads. Invoice discounting is similar but your business retains control over your sales ledger.

Your business may be suitable for factoring or invoice discounting if you have:

  • an annual turnover of at least £50,000, although some factors will consider start-ups and smaller businesses
  • a good spread of customers - there may be funding restrictions if a single customer accounts for more than about a third of turnover
  • simple, non-contractual debt
  • low levels of debt more than 90 days overdue
Your business may not be suitable for factoring if you:
  • sell to the public - factoring is only available for sales to commercial customers
  • have too many small invoices
  • have too many disputes and queries
  • are not a sound, reputable and trustworthy business
  • have customers that make part payments or stage payments
  • have complex contractual arrangements or warranty provisions
Factoring is more complex than some other forms of funding. You may want to take professional advice before using factoring for the first time.

The process
 

Factoring

Factoring provides a fast prepayment against your sales ledger. It allows you, at a cost, to improve cashflow by effectively selling your unpaid invoices to a factoring company.

When an invoice is raised

  • You raise an invoice, which has instructions to pay the factor directly and send it to the customer. Send a copy of the invoice to the factor
  • The factor makes an agreed percentage of the invoice available for you to draw on
  • The factor issues statements to the customer on your behalf. It operates credit control procedures including telephoning the customer if necessary. You will agree how to contact the customer with the factor beforehand
When an invoice is paid by the customer
  • The customer should pay 100% of the invoice directly to the factor
  • The factor pays the balance of the invoice to you
When an invoice is not paid

If an invoice is not paid, responsibility for paying the debt will depend on the type of agreement - either recourse factoring or non-recourse factoring. In recourse factoring you are liable for the debt, and in non-recourse factoring the factor takes on any bad debts.

Charges


The factor will take a fee when they receive the invoice. They will also charge a ‘discount charge’ which works like interest and is calculated against the balance of funds drawn on a monthly basis.

Invoice discounting


Invoice discounting is an alternative way of drawing money against your invoices that allows you to retain control over your sales ledger.

You will pay a fee to the invoice discounter, usually a percentage of the value of the invoices or an agreed fixed fee and discount (interest) on the net amount advanced. They will be notified of the invoice details electronically - through downloads of sales day books or invoice listings.

Once they receive notification, the invoice discounter will make funds available at the agreed percentage rate, which you can then use. As you receive cash from debtors you pay it the invoice discounter, reducing the outstanding balance and making the remaining amount available.

Pros and cons
 

Pros

  • Factoring and invoice discounting can boost your cashflow
  • Prices are competitive because of the number of factoring companies
  • Outsourcing your sales ledger while frees up your time to manage the business
  • Factors may give you useful information about the credit standing of your customers and they can help you to negotiate better terms with your suppliers
  • Factors can be an excellent strategic and financial resource when planning business growth
  • You will be protected from bad debts if you choose non-recourse factoring
  • Cash is released as soon as orders are invoiced
  • Factors will credit check your customers and can help your business trade with better quality customers
Cons
  • Factors will restrict funding against poor quality debtors, so you will need to manage these funding fluctuations
  • In order to end an arrangement with a factor, you will have to pay off any money they have advanced you on invoices if the customer has not paid them yet. This may require some business planning
  • How the factor deals with your customers will affect what your customers think of you. Make sure you use a reputable company that will not damage your reputation

Common mistakes
 

When entering into an agreement with a factor, it’s important that you understand what costs you are likely to incur, what your contractual obligations are and what your rights are should your circumstances change. Otherwise, you may be faced with unexpected charges later on.

You should compare offers from several companies and get professional advice before making a commitment to a factoring or invoice discounting provider.

Funding sources
 

Factors can be independent, or subsidiaries of major banks and financial institutions. The Asset Based Finance Association (ABFA) has a list of providers, with details of their turnover requirements and the services they offer.

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Yorkshire businesses get behind £10k fundraising campaign

Tuesday 04 April 2017

As preparations for the charity football initiative ‘The Match 2017’ continue to gain momentum, the latest supporters to get on board are Huddersfield-based businesses Magic Rock Brewing and Lindley Financial Management. The inaugural event, which will take place on Saturday 20th May at The MBI Shay Stadium in Halifax, will bring together footballing amateurs and Huddersfield Town legends, in a game that will help to raise much needed funds for Yorkshire Air Ambulance. Both firms have dug deep for the cause, and have each donated £500 in return for becoming an official shirt sponsor. With a running cost of £12,000 per day for the two yellow helicopters to remain active, the organisation relies entirely on donations to continue saving lives. And now further support is required to keep The Match proceeds growing, and help this initiative reach its £10,000 target. Magic Rock Brewing was founded by brothers Richard and Jonny Burhouse and inspired by brewing traditions and the US craft beer scene in particular. The award-winning and ever-growing company produces an innovative range of idiosyncratic beers in their 4,000sqft Tap Room, close to the town centre. When approached via social media and asked to get behind The Match, Richard says there was never any doubt about getting involved: “We are a community focused business, keen to support local initiatives wherever possible. We are aware of the excellent work the air ambulance does for the region, and wanted to do our bit.” Regular charity supporters Lindley Financial Management also had no qualms about signing up to help the event. The independent financial advisers, based in Brighouse, also support Pilgrim Bandits Charity, aiding soldier amputees injured in Iraq and Afghanistan. Commenting on The Match, director Mark Learmont, said: “I hope as many people as possible attend on May 20th. Nobody knows when they may need the help of the Yorkshire Air Ambulance – supporting them is vital and their services must be applauded.” Organiser, and founder of grassroots football specialists Coaches Club, Dave Learmont, adds: “I am so thankful that two local businesses have gone the extra mile to raise awareness and proceeds for this fantastic charity. 100% of all funds donated will go to Yorkshire Air Ambulance, and these shirt sponsorships put us well on our way to hitting our huge target.” But the search for sponsors isn’t over, with the players themselves now looking for individual support. For only £150, companies will secure their name and details on the official match website, alongside their logo on the programme. The players and Town legends are also appealing for members of the public to get on board and buy tickets. Available at £10 for adults and £5 for children, the aim is to provide a fun, low cost day out for all the family. Pre-match and half-time entertainment – as well as a couple of extra special guests – will be revealed over the coming weeks. All tickets must be purchased before the game, via justgiving.com/teams/coaches-club. Further information and updates about The Match and player sponsorship can be found at The Coaches Club website, and on Twitter @cccmatch.
Posted by Scriba PR
Vizulate becomes Approved Supplier on Digital Enterprise scheme

Friday 10 March 2017

Vizulate Digital is delighted to announce that we have been named as an approved supplier on the Leeds City Region Digital Enterprise scheme, which allows eligible small and medium sized businesses across Yorkshire to ‘Invest in Digital’. Running until March 2019, the Digital Enterprise scheme aims to support the growth and development of SMEs in the region through investment in digital skills and technology. Eligible businesses will be able to apply for 40% funding towards the cost of digital projects including digital marketing, social media, web design and development, e-commerce and more – up to a maximum of £5,000. The Digital Growth Vouchers could also fund part of the cost of technology upgrades such as IT and telecoms and, if approved, the business will then only have to cover the remaining 60% of the cost. The Digital Enterprise scheme is a partnership programme which is partly funded by the European Union (European Regional Development Fund), the West Yorkshire Combined Authority/Leeds city region Local Enterprise Partnership (LEP) and the 9 local authorities which form part of the Leeds city region – Leeds, Calderdale, Kirklees, Bradford, Selby, Craven, Harrogate, York and Wakefield. As approved suppliers on the Digital Enterprise scheme with over 10 years’ experience we are able to offer the full range of digital services including: Website Design & Development E-Commerce Digital Marketing Social Media Search Engine Optimisation (SEO) Online Advertising (Google AdWords, Facebook Ads etc.) Video & Animation Integrated Digital Solutions Web Hosting & Email Through our trusted partners we can also provide IT and telecoms solutions. We believe digital marketing represents the single biggest opportunity for businesses to achieve growth.
Posted by Vizulate Digital
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Events Posted

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Facebook Advertising Workshop
Thursday 27 April 2017, 09:30 - 12:30
Bridge House, 2 Woodhead Road, Holmfirth, HD9 6PX
£65 - 6 places
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Business Hub Live - Innovation and Research & Development
Wednesday 24 May 2017, 08:30 - 10:30
Firth Street, Huddersfield, HD1 3BD
Free Entry - 50 places
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