Factoring

About Factoring

Factoring is a way of raising money against your outstanding ledger. The process works as follows

• Deliver your goods or service.
• Send your invoice to the finance company and your customer
• Receive up to 90% of the invoice value from your chosen finance company
• Your customer pays the invoice 30-60-90 days later (as normal)
• The finance company pays you back the remaining 10% to 20% of the invoice minus their fees (typically less than 2%)

Bad Debt Protection (BDP)

BDP can insure against your debtors so that if they go bust, as long as you have a limit against them, your outstanding balance can be covered by insurance. This typically costs around 1% of turnover. Can be lower or higher depending on turnover, but the above is a good average.

• Apply for a limit for any new or existing customers.
• The insurer will give you a certain limit to work within.
• If you trade within the limits and the client goes bust you will be covered by the limit they set.

As you can imagine, as with any insurance product, there are various T&Cs but the above is a great indication of how it works.

Spot Factoring

A spot facility will always cost you more money than a traditional facility as you are paying for the flexibility of not being tied into a contract. That being said, there are two types of spot facilities around. See below to understand what the differences are:

Secured Spot Factoring

• This works more like a transitional facility, so it is a debenture over the company.
• PG from the director/Owner
• Receive up to 90% of the invoice value.
• Fees are cheaper than an unsecured spot but you are still looking at paying from 2.5% to 3%

Unsecured Spot Factoring

• No Debenture
• Fees are about 5% including insurance.
• You receive all the income minus the lender’s fees.
• You receive all the money minus the lender’s fees.