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• 21 Apr

  Factoring Invoice Discounting A Way To Fund Increasing Turnover

  

  Factoring invoice discounting is a great way for a business to fund increasing turnover. In actual fact, the term does not refer to a single type of receivables financing, it is a combination of two different product names. However, people often use this term as a generic reference to invoice finance style services.

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  Product Names

  The two products referenced within the name are as follows:

  • Factoring - prepayments against invoices and an outsourced credit control service.
    
    
  • Invoice discounting - just prepayments without credit control support.

  Growth In The UK

  Although UK GDP growth forecasts have been reduced to 3.6% for this year, that is still an increase that will lead to cash flow issues for many UK companies. Also, many organisations will be growing much more rapidly. As a company increases its turnover, it has to pay for more raw materials, staff, premises, taxes and other expenses to support those new sales. This can place pressure on its cash reserves.

  Help To Grow

  For more help growing your business see our Growth Hub for tips, help and support.

  Increasing Variable Costs

  The more a business sells, the more cash it has to find to meet the cost of purchasing stock or paying staff. These are some of a company's "variable costs". This term means that these costs are linked directly to the volume of sales. Other costs may be "fixed", e.g., the cost of the rental on their premises. Fixed costs, although they might increase with inflationary pressures, do not increase as a result of making more sales.

  Therefore, as a company increases its volume of sales it can need more working capital to pay its rising variable costs. In reality, many companies also need help meeting their fixed costs.

  Factoring Invoice Discounting To Fund Increasing Turnover

  Financial products such as factoring and invoice discounting can be used to help meet those rising costs. However, these products have one big advantage over alternative forms of funding such as overdrafts and loans. The amount of funding expands with increasing turnover. This means that it keeps pace with rising variable costs, making it an ideal way to fund a growing business.

  By Glenn Blackman