Invoice factoring

Invoice factoring is, in its most basic form, the selling of invoices at a discounted price to an invoice factoring company which then collects the full amount of the invoice from the debtors.

Invoice factoring services – What to think about

If you are a business that is considering entering into an agreement with an invoice factoring company, there are many things to think about. What are your needs? Invoice factoring services can and often do include the collection of late payments from debtors, the provision of up to date statements to the business of which debtors have paid. An example on invoice finance is RBS. For some businesses such services are very appropriate as it can mean that there is less paperwork for them to do and less legwork in the chasing up of late payments.



Other business owners may worry about their customers’ reaction to being notified that they owe money to an invoice factoring company for the services rendered by the business. If you are a business owner who wishes to retain the function of chasing late payments, this should be reflected in the costs of your invoice factoring agreement. You should also think about whether you are able to negotiate discounts from suppliers for quick payment as this could offset the cost of the invoice factoring services.

Factoring receivables

The other main thing to think about when negotiating an agreement with a factoring receivables company is who bears the risk of non-payment; is it you or is it the factoring receivables company? Traditionally it will be the factoring receivables company and they will obtain insurance in the case of bankruptcy (and therefore non-payment) of the debtor. If you retain this risk, you should of course insist on lower costs.

Invoice discounting factoring

There are two costs usually involved in invoice discounting factoring; the invoice discount charge and the service charge. The invoice discount charge is the percentage of the invoice which is discounted for the factoring company. The service charge is the amount the invoice discounting factoring company charges for administering your sales ledger and varies according to how many customers you have, how many invoices your business is likely to raise and the general size of your business.