Product Description
Factoring is a process by which small and medium sized businesses can release cash from their invoices within days of sending them out. Companies that offer factoring services can pay up to 85% of the value of an invoice with 24 hours of the invoice being issued, so providing the issuing company with an ongoing cash flow with which to pay suppliers and staff. Factoring services do incur a charge but they also allow small companies to make full use of their money.

Main Players
There are hundreds of factoring service brokers online however the main names include Bank of Scotland Corporate, Barclays, Bibby Financial Services, Five Arrows Commercial Finance and Fortis. All of the major high street banks offer factoring services however you need a minimum turnover to qualify for some of them and so it is often better to go through a broker.

Pros of Factoring Services

• Factoring allows you to release a large percentage of the money owed to you before you have technically been paid it.
• You can make good use of the money you earn from sales by having it within days of sending an invoice.
• The time your company spends in debt is reduced because you get money owed to you sooner.
• Most companies that offer factoring services also include sales ledger management, payment and debt collection and accounting in with the service.

Cons of Factoring Services

• You are often charged nominal interest on the money that is advanced to you as well as a service fee.
• Some companies insist you also take out credit insurance so that you’re covered against non-payers and this can be expensive.
• Some factoring service brokers like to take control of your sales ledger and this may not be suitable for some business owners.

Things to Consider when Choosing a Provider
As mentioned above there are plenty of providers to choose from and most of them will offer the same basic factoring service packages. Some however will offer to include additional services into the package and if you’re happy to have these then so much the better. You should be aware though that the service fee you pay will increase and so if you don’t need the additional services, such as sales ledger management and payment collection, then you shouldn’t be talked into including them.

You will also want to look for a company that is easy to deal with and easy to contact. They should also offer online management of your account and monthly or even weekly statements of your payment accounts. You should also make a note of the fees that they intend to charge for their factoring services as these can differ dramatically from broker to broker.

BUYability Summary
Factoring services are an ideal investment for small businesses that are just starting out as they provide an ongoing cash flow from the sales made. They do cost to use though and it’s important to weigh up the pros and cons before agreeing to the service. Overall, they are a good bet if you need regular injections of cash and you don’t mind paying for the privilege.