Factoring is the oldest form of lending in the world. Clients conduct work or offer a service and with this finance facilty, get paid straight away instead of waiting 30 days or more. Today in the modern world more clients are on line and have email systems running making invoicing nearly paperless.
Factoring by explanation means you provide completed invoices into a financier and get paid a percentage of that invoice in 48 hours not 48 days. Not to be confused with invoice discounting.
This is how Debtor Finance works. You submit invoices and the lender verifies the work is complete, delivered etc. Once this has occurred you will be advanced up to 80% of the outstanding invoices into your bank account. This increases cashflow and gives your company the ability to purchase stock or pay bills ahead of schedule, possibly creating discounts and offsetting the finance cost.
Once the invoices are being paid for, your debtor will pay the full amount into the lenders account. The lender receipts the invoice, taking out amount borrowed plus a fee and gives you back your final 20%.
Example:
$1000.00 (Factored) you get $800.00 in 48 hours of verification. Debtor pays $1000.00 to lender and they take out $800.00. You get final final $200.00 less lender fee.
Factoring fees.
Most lenders vary slightly in fee setups. However Factoring normally involves a credit department, collection department, and some form of account management. This level of service isn't provided for nothing. Between 2-4% on average is the upfront fee charged on an invoice. This is sometimes called administration, service, or management fee. The secondary charge is interest. The amount you draw or borrow times by the number of days outstanding. Depending on the lender and its borrow costs from a bank, determines your interest rate charged.
TDFC consultants are fully aware of lenders rates and fee structures. If we don't know we find out. For a full explanation of Factoring give a TDFC consultant a call. TDFC stand by our service.
This is a great outline on what debtor finance is. We regularly have delays in income because we work with insurance companies alot. We have recently starting using this company to help us out, they have provided a sound cash flow solution for our growing company.
ReplyDeleteDebtor finance is a quick way to get cash and it is flexible and grows with your business.It is not a bad thing but a good way to get money.
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