Invoice Factoring Essex

As a business owner in Essex you maybe looking at a financial product called invoice factoring as a way to finance your company.

Essex based businesses are often in need of more than a helping hand to get by in today’s financial climate, and one of the more popular and reliable ways to access funding at short notice is through an invoice factoring company.

What is invoice factoring in Essex?

Invoice factoring is type of business finance where you “sell” some or all of your Essex based company’s outstanding invoices to a third party as a way of improving your cash flow and revenue stability.

Once sold the factoring company will pay you most of the invoiced amount immediately, then collect payment directly from your customers

How does factoring work?

Business and companies in Essex will sell the control of their accounts receivable process to an invoice factoring lender. You can fund the full sales ledger or part of.

The process works like this:

1. Your Essex based business provides its goods or services to your customers in the normal way.

2. Invoice your customers for those goods or services as normal.

3. You then sell the unpaid raised invoices to a factoring company. The factoring company pays you up-to 90% of the invoiced amount immediately once they have verifying that the invoices are valid.

4. Your customers will then pay the factoring company directly.

5. The factoring company will then pay you the remaining invoice amount, minus their fee, once they’ve been paid in full.

When should an Essex based company use factoring?

An Essex based company should use invoice factoring when it routinely has a lot of invoices outstanding and your cash flow is suffering because of it.

As an example, lets say your organisation based in Essex sells on 30-day payment terms. Most of the debtors on your sales ledger will pay within 30 days.

The 30-days of revenue might represent the bulk of your potential cash flow for your business, but you can’t actually use it. Invoice factoring for Essex businesses allows you to release that cash almost immediately, or at least a large part of it.

The money could then be used for:

• Funding short-term expenses
• Repay a bounce back loan
• Take advantage of seasonal business opportunities
• Paying HMRC or Suppliers.

Advantages of factoring 

Factoring companies can unlock funds tied up in unpaid invoices so that your Essex business receives funds without waiting for customers to pay.

This process makes cash flow management easier for the businesses that use factoring. Most factoring providers will manage credit control, too, meaning that the business no longer needs to chase customers for invoice payment – something that can save a lot of admin time.

Disadvantages of factoring

Most factoring companies lock their Essex based customers into a long contract of up-to twelve months whereby all of their sales ledger must be funded through the factoring facility, and these contracts are often costly and difficult to get out of.

Invoice factoring companies will often quote favourable rates and fees at the outset but the addition of extra fees (or ‘disbursements’) on a monthly basis adds considerable cost and makes this an expensive form of finance.

Many factoring facilities are unsuitable for businesses which deal mostly with one or two main customers. This is due to factoring companies stipulating low ‘concentration limits’ .

Essex based business clients that use invoice factoring prefer to maintain their own credit control rather than enter into a facility that insists on chasing their customers for payment. That is because often it is important to small businesses to maintain healthy and friendly relationships with their customers.