Alternatives to Invoice Factoring

Alan in Invoice Factoring | No Comments

Invoice factoring is ever more to the forefront of bank managers’ minds when they review clients borrowing requirements. It generally provides greater income to the bank so managers who are under ever more pressure to increase income often recommend Invoice Factoring when it is not appropriate. So Beware.

The disadvantages of invoice factoring

Invoice Factoring can often solve immediate cash flow problems. But you have effectively sold your debts and have little or no control over the actions of the factoring company. Invoice factoring is a multiple of the cost of an overdraft. Many businesses see invoice factoring as a habit - something they would desperately love to be able to do without. Not exactly the most positive endorsement.

At a fundamental level most people, simply don’t understand how these invoice factoring arrangements work. If the factor (or discounter) proposes advancing (say) 85% of the gross invoice value, almost everyone assumes they get the other 15% (less a bit for charges) once the customer pays. There is, an undeniable logic to this. But it’s not true. You cannot and will not understand how one of these facilities works by looking at a single invoice. The lender advances you up to a maximum of say 85% of the value of your entire sales (or receivables) ledger at any point in time (assuming all sales invoices are eligible). So you don’t get the other 15% until you close the facility. It’s that simple. And although you might not feel quite as keen as you did before, don’t kid yourself.

Terminating an invoice factoring agreement (if things don’t work out) and taking back control over the sales ledger in-house sounds straightforward enough but in practice it isn’t. Typically those who have experienced the endless hassle once never want to go through it again.

What are the alternatives to Invoice Factoring?

First you need to consider what you want to achieve - in most cases it is funding due to a lack of cash flow. Let’s get down to basics if your customers paid your invoices to your agreed terms would your cash flow provide your business with the funds to run the business and hopefully a profit. If this is the case your issue is to improve the payments from your clients and not to introduce the additional costs of invoice factoring. If you go the factoring route you are not solving the problem but simply funding your customers’ habit of not paying on time.

Remember - the more lenient you are and the more you let payment slide the more your customers will assume you don’t mind waiting and are prepared to extend their credit.
This is where Cashflow Protector can help businesses improve their cash flow and it answers the key concerns businesses have with invoice factoring.

• Cost - it is a lot cheaper than factoring and no commission charges

• Client retention – it protects customer relationships

• Payment – all money (100%) paid direct to you

• Control – you can view our actions taken on your behalf and update payments and put instructions on hold by accessing our secure website at any time

Cashflow Protector - a real alternative to invoice factoring

Cashflow Protector is a powerful cashflow management tool that radically improves your payment rates. It works by chasing your slow payers – without upsetting your clients. It just get you paid! To find out more take the tour or call Cashflow Protector on 020 8536 4138.