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• 22 Jan

  How To Make A Successful Factoring Application

  How to make a successful factoring application is not just down to following a set process, there are other factors, such as the nature of your business that will play a part in the outcome. However, below we have put together a few pointers to help you maximise the chances of your factoring applications being approved.

  How To Make A Successful Factoring Application

  If you are looking to set up a factoring facility, there are a number of steps that you can take in order to maximise the chances of your factoring application being successful.

  Clean Up Your Sales Ledger

  Although the factoring company will undertake the credit control and sales ledger management for you, they are funding against your debts and this funding will still be affected by the quality of the receivables. This means that if you have old outstanding debts, these are unlikely to be funded and can introduce restrictions in the amount of funds released because you have a history of slow payments.

  In order to avoid this., You can clean up your sales ledger get advance. This would mean going through the ledger, chasing in any overdue payments (see our guide to credit control), and allocating any unallocated cash and payments from customers.

  Produce Cash Flow Forecasts & A Business Plan

  Factoring is all about cash flow. Receiving prepayments against invoices means that you will have more cash available than you do at present. Any factoring company will want to assure themselves that your cash flow, with the benefit of the factors cash injection, will be sufficient to maintain your business.

  You can demonstrate this by producing a cash flow forecast, including prepayments from the factor's facility.

  Also having a basic business plan can demonstrate the opportunities that your business is looking to exploit and build confidence in your venture. See our free guide to business planning which is aimed at new startups, but can equally be applied to established businesses.

  Minimise Potential Sales Ledger Offsets

  Another aspect of your sales ledger which is of interest to factoring companies, is the amount of potential offsets against your outstanding sales invoices. The reason for this, is because this affects the value of the receivables, and hence the amount that the factoring company can expect to collect against your sales ledger. This drives the level at which they will set the prepayments.

  In order to maximise prepayments, you can minimise the amount of potential offsets on your sales ledger. For example, these could include things such as contra accounts, where you have a balance on both the sales and purchase ledger. Removing any balance on your creditors ledger, for a debtor, could enable the debts to become eligible for funding.

  Another issue is the prevalence of credit notes. If there are likely to be a lot of credit notes, due to disputes or administration issues, this can reduce the amount of funding that the factoring company are prepared to provide.

  In order to combat this, you should clean up practices and minimise the amount of credit notes that are issued.

  Realistic Sales Projections

  One of the metrics that a factor will consider is the volume of turnover that you expect to transact. The pricing for your facility will be predicated upon this projected turnover for the next year. It is therefore important to set realistic turnover projections, that are going to be achievable, in order to ensure that the pricing is structured in such a way that is appropriate for your business.

  If you inflate your projections, you may achieve a lower set of charges, but they are likely to include minimum charges that may come into play. Similarly, if you understate the amount of projected turnover, and are overly cautious, you could end up paying more than you should.

  You should see our research regarding minimum fees, to understand how factoring companies approach setting these parameters.

  Get Support From A Factoring Broker

  A factoring broker such as FundInvoice, will be able to assist you in identifying the information that is critical to the factoring company, and presenting it in an appropriate way. For help, please call Sean on 03330 113622.

  By Glenn Blackman