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• 12 Oct

  Small Business Invoice Factoring

  Financing for businesses comes in all shapes and sizes, as do the businesses that it serves. This article focuses on the needs of small businesses, and one particular service that can increase cash flow.

  This product discussed in this post is small business invoice factoring, a financing service aimed explicitly at micro companies that need additional working capital and credit control support.

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  Small Business Invoice Factoring

  Smaller companies can use invoice factoring to release the cash that is tied up in their unpaid accounts receivable. These are the outstanding invoices that they are owed by their customers. If a company has a number of unpaid accounts, it may be able to receive prepayments against them to generate a substantial amount of additional working capital.

  Additionally, the product also includes a credit control service. This means that the finance company will help collect the unpaid invoices. This can free up the business owner's time or mean that they don't need to employ a credit controller.

  See also: Small Business Financing Options

  How The Service Works

  As invoices are raised for either products delivered or services provided, the company submits them to the factoring company. Subject to specific funding rules, the prepayments are made available against the invoice values. The balance of the invoice value, minus the fee for using the service, is passed to the small business once the debtor pays the invoice.

  Micro companies can choose to submit all of their invoices or just a selected few invoices. The latter option can help them control the costs and generate funding only when it's needed.

  Who Qualifies For Funding

  Small UK companies can access this type of funding providing they sell products or services to other businesses either in the UK or abroad. As the funding is secured against the invoices, it takes little account of the financial standing of the small business. This means that new companies or those without any track record can access this type of financing. This is different to other forms of business finance such as loans and overdrafts.

  What Are The Costs?

  The costs depend upon the type of facility chosen and the size of the business. There are some details of how the fees work and examples of costs shown in our section on funding startups and small businesses.

  By Glenn Blackman