Like the old saying would say, “The cheapest funds are always your own”. That’s fine and proper but what if you’ve got business plans which your money resources don’t meet or you want to keep your options open, what’s available then?
Traditionally the very first port of call would have been the financial institution you have the business or private bank-account with, they are fully aware your accounts history and will be able to make an offer providing the strategic business plan justifies the investment and they have enough security.
Alternatively you can approach another bank, though the application process is going to be a lot longer as they need to know your business and know you as an individual by requesting various forms of identity etc. This is still unlikely to happen though they may offer you better rates.
The situation with loan from the bank funding is just how much do you ask for. A term loan for 5 years is a long time in business as well as in that time your preferences will have changed both top to bottom. A term loan isn’t flexible and the procedure of enhancing the facility incurs additional costs and additional security provisions. Terms loans improve capital purchases such buildings and Licences certainly not work for working capital needs.
Modern businesses have to have a more flexible approach to working capital finance. Invoice finance is provided in a unique way through factoring. A factoring facility is agreed at the start as a percentage of the gross debtor book so as the debtor book grows so the facility grows with it. You don’t need to spend on renewal fees and the debtor book serves as the security to enable the directors to only provide a limited personal guarantee to relief fraud.
The costs of factoring can work out only a term loan along with the advantage of flexibility of funding availability it is the obvious option for capital finance.
The Process of Factoring
Once a factoring facility has been setup depending on the exact nature of the agreement on a regular basis the gross invoice value is uploaded towards the factor’s system as well as a copy sent in the post. A debtor book is created from these invoices which once approved and given certain concentration limits and credit checkers can be an available balance that can be drawn down on a 3-day transfer or simply on the same day. When a customer pays an invoice this cash is posted to the Factor’s system as well as the balance of the prepayment becomes available to draw down.
Most funders uses various types of solution to factoring and different forms of business that suit their model, and the aforementioned presentation is only a generic overview. If you would like to find out more about the flexible factoring facility provided by The Interface Financial Group, please call us on 0800 014 8626 or visit www.ifgnetwork.co.uk now.
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- How Small Businesses can Take Advantage of Invoice Factoring
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