Looking At Debt Factoring?
You may be thinking what is factoring and how does it work? It’s a financial means of supporting cash-flow for the start-up and SME businesses. To maximise the benefit to your business there are a few pre-conditions. Invoicing B2B (Business to Business) is a must. Also invoicing once the work or service is completed. Debt factoring is a finance facility used to support cash-flow and grow a business. Commonly for a start-up business, there will be a set fixed bundled fee structure so it’s easy to calculate and controllable measure. A business finance broker like us will run through pre-qualifications to make sure your business can use factoring. It can be a flexible finance option and tailored to the individual business requirement.
The Impact of Debt Factoring On Cash Flow?
Very rarely can new business owners foresee the importance of cash-flow and how this will impact growth in relation to turnover. Winning new large contacts can be fantastic. With large corporations, allowing smaller SME businesses a chance to grow. However, scrutinizing contact payment terms is imperative. This is because the large the corporation, the slower payment terms can become. So even though you may think, fantastic I’ve won new secured work. The impact on cash-flow to fulfill this contract or service can be costly. Anything over 30 days or even less depending on the industry can have an effect. So how do you mitigate against these factors? Debt factoring is used to release outstanding invoices as an upfront payment. An example would be your business invoicing £1,000 on 30-day payment terms. In the next 30 days wages, expenses, marketing, and other business expenditure continue. In addition, the customer or debtor is late at paying. This leaves you the business owner in difficulty. So, factoring or debt factoring can aid this. Once you have raised the invoice and sent it to your customer. The invoice finance company can release up to 90% of the value of it. Resulting in £900 minus pre-agreed fees are paid to you. On payment of the invoice the remaining balance it released back to you. If you are unsure or would like the security of funding, then credit insurance can assist. This mitigates against bad debts providing you the business owner with the financial backing. To grow and boost cash-flow within your business.
Why Is Turnover Important in Factoring
When setting up invoice factoring the financier will ask what your previous or projected turnover levels are. One of the simplest definitions of turnover is the total amount of sales during a time frame. Commonly turnover is calculated and assessed over 12 months. If you require new start business funding, then having a clear business plan and the cash-flow forecast is a must. If nothing else, it articulates your business projections. Otherwise, it’s just a great idea in your head which can become extremely stressful. So, having a business plan that has cash-flow and turnover levels in it is so important. Also, when you speak to a business finance broker, we will assess this for you. Pre-qualifying what the finance companies will want to see. Making the process seamless and stress-free. Most importantly getting the best debt factoring for your business. Hopefully, you now have a brief understanding of factoring and why it’s so important. Knowing why having basic financials such as turnover levels is so crucial.