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Invoice Finance/Factoring
4 Answers
Hello!
Does anyone use their bank to finance/factor their business's invoices? Our lack of cash-flow is crippling us at the moment.
We are with HSBC and have had a meeting regarding the above- I would just like to hear someone's personal experiences of it. Thank you in advance, curly~sue.
Does anyone use their bank to finance/factor their business's invoices? Our lack of cash-flow is crippling us at the moment.
We are with HSBC and have had a meeting regarding the above- I would just like to hear someone's personal experiences of it. Thank you in advance, curly~sue.
Answers
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we use HSBC to factor, but we dont actually take the money. we used to but now we use the service mainly for the insurance and the credit control.
They give each customer a credit limit, anything over this is your own risk. They dont pay out the first �250 i think it is. If a customer refuses to pay a small account say for instance �500 they wont even take it to court.
The people who are assigned to chase your accounts often dont call anyone until the middle or end of month due. With ours we found that our customers who paid on same day every month had a call the day before. Awkward customers were rarely chased.
If you only have a few customers be careful. Once one customer exceeds 30% of total balance outstanding they will not issue fund against what they owe over this.
all in all it can work out well and we have stuck with HSBC for many years, its cheaper for us than hiring a credit controller and insuring moneys owed.
They give each customer a credit limit, anything over this is your own risk. They dont pay out the first �250 i think it is. If a customer refuses to pay a small account say for instance �500 they wont even take it to court.
The people who are assigned to chase your accounts often dont call anyone until the middle or end of month due. With ours we found that our customers who paid on same day every month had a call the day before. Awkward customers were rarely chased.
If you only have a few customers be careful. Once one customer exceeds 30% of total balance outstanding they will not issue fund against what they owe over this.
all in all it can work out well and we have stuck with HSBC for many years, its cheaper for us than hiring a credit controller and insuring moneys owed.
There are smaller companies who specialise in this and can offer a far better service.
We are a finance broker who deal with a lot of factoring / invoice discounting companies - although we do introduce to the bigger banks, we find the smaller companies offering a far more tailored solution at a competitive price.
We are a finance broker who deal with a lot of factoring / invoice discounting companies - although we do introduce to the bigger banks, we find the smaller companies offering a far more tailored solution at a competitive price.
From a Factor's perspective, it is important that the nature of your business is such that there can be no uncertainty that the debt that the Factor buys from you will be paid. Therefore, factoring is no good if the goods/services you supply are subject to contract, or are invoiced in advance, involve 'bill and hold' or if there is a ban on assignment of the debt.
The Factor makes his money by buying the debt (invoice) from you at slightly less than 100p in the � and charging you a 'discount charge' (to all intents and purpose, interest) from the day you draw on the factoring facility to the day the debtor pays the factor.
There are lots of almost-hidden charges as well. For instance, if a debt remains unsettled for more than (usually) 90 days, there can be a 'refactoring charge' of a few percentage points. If you draw more from the factoring line than is supported by your invoices then an 'overpayment charge' will be levied. If the debtor ultimately doesn't pay the factor then you are obliged to buy the debt back at the original full value plus any charges that the Factor has incurred in trying to get payment.
Factoring is great for small businesses that don't want to employ their own credit controller, and who have debts that are readily collectable and enforceable. An ideal sales ledger will be well spread, because the Factor will only allow so much against any one name (known as 'concentration risk) and only if that name is top credit quality will they be willing to stretch the rules for you.
Basically, my advice would be to read the Factoring Agreement very carefully and don't be shy to ask what terms mean - or better still spend a bit of money in getting a solicitor to review it. It won't contain anything illegal, but you must know where the hazards are in order to avoid them.
The Factor makes his money by buying the debt (invoice) from you at slightly less than 100p in the � and charging you a 'discount charge' (to all intents and purpose, interest) from the day you draw on the factoring facility to the day the debtor pays the factor.
There are lots of almost-hidden charges as well. For instance, if a debt remains unsettled for more than (usually) 90 days, there can be a 'refactoring charge' of a few percentage points. If you draw more from the factoring line than is supported by your invoices then an 'overpayment charge' will be levied. If the debtor ultimately doesn't pay the factor then you are obliged to buy the debt back at the original full value plus any charges that the Factor has incurred in trying to get payment.
Factoring is great for small businesses that don't want to employ their own credit controller, and who have debts that are readily collectable and enforceable. An ideal sales ledger will be well spread, because the Factor will only allow so much against any one name (known as 'concentration risk) and only if that name is top credit quality will they be willing to stretch the rules for you.
Basically, my advice would be to read the Factoring Agreement very carefully and don't be shy to ask what terms mean - or better still spend a bit of money in getting a solicitor to review it. It won't contain anything illegal, but you must know where the hazards are in order to avoid them.
Hi curly~sue,
I'm so sorry to hear that you're struggling with cash flow. Invoice financing can be a great way to get the cash you need to keep your business running smoothly.
Here are some of the benefits of using invoice financing:
Get paid immediately for your invoices, even if your customers haven't paid you yet.
Improve your cash flow and free up money to invest in your business.
Reduce the risk of bad debts.
Grow your business faster.
If you are unsure of what the HSBC is offering, chat to an independant service provider, who has a network of professionals that will be happy to answer any questions.
eg.
https:/
https:/
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