Factor Your Invoices For Cash

Firms that have experienced trouble getting a business loan are seeking other forms of lending. To explore this further, let’s outline the process of factoring your accounts receivables instead.

How does it work?

Invoice factoring works by providing a cash advance based on the total value of the invoices that you provide as collateral. Depending on the factoring provider, it is common to receive up to 80-90 percent of the invoice value upfront. Once the funds are released to you, you then receive the remaining value once the client pays the factor, minus a factoring fee.

This fee can be structured in any number of ways, but it generally nets out to be about three to five percent of the invoice value.

What are the requirements?

To adopt invoice factoring, your company must meet two basic conditions. First, you should have no existing charges on your accounts receivable. Essentially, this means that no other company should have a claim on payments when they come in. This can make it problematic for firms in certain industries such as manufacturing to find a factoring company that will enlist their invoices.

Your customers must be creditworthy. Factoring only works successfully if clients pay their invoices. Based on this, the factoring company will carry out credit and risk checks on your customers. Your company’s credit score will not necessarily determine the provider’s decision to approve or reject your request. Instead, the factoring provider will focus on evaluating your clients to determine whether and how quickly they will pay their invoices.

Which factoring company will best suit my business needs?

There are many factoring companies ranging from small financial service businesses to fintechs to large banks. Not all will necessarily onboard your business as some may have different criteria. There are factoring companies that specialise in specific industries like manufacturing or recruitment, the advantage being they know your business sector inside out. Other providers may require a certain minimum per invoice or total invoice amount before they will do business with you.

Taking the time to weigh out your options when choosing a factoring company would be sensible. The fee/pricing structure should define which provider you choose to appoint. Using likely customer payment scenarios, calculate what the total fees will be for the different vendors. Deposit or application fees, the advance rate and monthly minimums should also be explored.
Finally, check whether a minimum length contract is required and, if so, what penalties are assessed if you break it.

Getting paid in advance and unlocking working capital from your invoices, even with a percentage taken off the top, might be a strategic scaling method for your business to take. In this new era of innovative funding, factoring your invoices can help your sales multiply.


>> Is your business in need of fast, short-term financing? Do you need to access cash faster than your customers pay you?

Populous World is an Invoice Finance provider that unlocks working capital for UK businesses.

Bridging your business’s cash flow gap is something that Populous World excels in delivering, providing you with the funding tools to grow and sustain your business.

For more information, visit us or contact a member of our funding team: [email protected]


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