When looking for a property, you should ideally consult a property agency in order to secure the right property based on your requirements and resources. The same scenario applies to factoring. Factoring brokers are like the agency that aim to find the right financing solution to your business’ need.
What is Factoring? How can it help my business?
Factoring is a business funding solution that enables you to release up to 90% of the cash in your sales ledger within a very short period of time, say 48 hours. It closes the cashflow gap between when an invoice is raised and when an invoice is settled by the customer. With business factoring, the outstanding invoice is used as the principal security against which the funds are raised.
In the UK, around 42000 businesses currently benefit from factoring as they no longer have to wait up to 90 days to get paid by their customers. In most cases, the factoring company takes full responsibility of your credit control, allowing you to trade freely. Factoring could be administered confidentially whereby your customers are unaware of a lender’s involvement.
With a factoring facility in place, your business can cover overheads such as rents, staff and equipment without having to wait for a late-paying customer to settle their invoice. Your business’ cashflow is improved significantly and you can take advantage of early supplier discounts.
Disadvantages of approaching lenders directly
There are two possible options for any business looking for a factoring facility – to search for a lender themselves or to go through factoring brokers. Though a straight-forward option, approaching lenders directly could be disadvantageous as shown below.
Time consuming: When applying for a factoring facility, businesses often have to get quotes from potential lenders within their sector. They will need to give the same details to each and every lender they apply to. So even after you’ve conducted some research on potential lenders, there’s a bigger job ahead of you.
Lending Criteria: There are several factoring lenders, each having specific pre-eligibility criteria for the businesses they lend to. For instance, not all lenders offer a factoring facility to the construction industry. This makes it difficult for businesses as they might get turned down by the several lenders they approach.
Variety of lenders: In the UK, there are several factoring lenders, ranging from high street banks to independent lenders. Most lenders will tend to specialise with businesses in certain locations, industries or of a certain size. This makes it very difficult to shortlist the potential lenders suitable for your business.
Competition between lenders: It could be very difficult trying to compare the rates charged by most lenders as most lenders present and market their costs in different ways.
Risk of termination: You can easily tell what level of service you’ll receive as every lender often describes what to expect of their services. However, if it turns out not to be as expected, you may be committed to a lengthy agreement and in some cases expensive cancellation fees.
Benefits of using a factoring broker
A factoring broker is a ‘middle-man’ between a business seeking a factoring facility and a factoring lender. They can put you in touch with the right factoring lender for your business and offer the following benefits:
Preferential charges and discounts: Some experienced brokers have established a solid relationship with factoring lenders. In return, businesses such as yours could have access to preferential rates and special offers. Some factoring brokers for instance could arrange for a rolling contract period, with no additional charges whereby customers can terminate the agreement at any time within the set period, say 3 months.
Free Quotes: Most factoring brokers offer you the chance to get online quotes instantly. It often requires very limited relevant information on your business and these quotes will reflect a range of lender deals. By filling a quote form, very often you could get a response on the same working day.
Offer condensed experience: Experienced brokers have helped so many firms find the right cash flow solution which means that you are unlikely to be presenting your broker with a situation they’ve not dealt with before. Factoring brokers often have a deep understanding of the different factoring options available. Your particular circumstances will be unique but it’s likely that the broker will have helped organisations with similar issues in the past.
Access to expert advice: Factoring brokers understand the needs of both parties and will identify the most suitable lender(s) on their panel to match your business’ needs. They will be able to offer you good impartial advice on a range of services. A good broker should be aware of how flexible lenders can be and advice you on the risks to avoid. You’ll be advised on the best value and you could have access to the most affordable deal.
Strong relationship with potential lenders: Factoring brokers work with a network of lenders and allocate the most suitable lenders for your business. This is after taking into consideration your business’ size, industry and location. Factoring brokers can save you a great deal of time, effort and money by finding you the most suitable lender deals.
Free Consultation Services: Factoring brokers usually don’t charge you a penny for using their consultation services and advice – it’s free to speak to them. Their fees are paid by the lenders and it’s in their interest to help you find the best deal.
This business advice article was provided by Touch Financial, the Factoring specialists.