What is factoring?

Factoring allows your business to raise cash immediately against the unpaid invoices that are owed to you by your trade customers.

For many businesses, outstanding sales invoices are their largest asset with up to one quarter of a business's overall yearly turnover remaining unpaid at any one time.

Effectively, this cash is locked up, and the inability of the business management to access these funds can have a detrimental effect on the business's growth and, in some cases, can result in insolvency.

The other advantage of factoring is that the management of the debtors' ledger is outsourced to professionals who have the skill, expertise and systems to collect the outstanding invoices of the firm in a quck and efficient manner. The customer can then spend more time and resources on the business's core activities.

Here's a quick breakdown of the steps involved:

1. YourCompany delivers goods and/or services to trade customers
2. YourCompany then invoices the customers, sending the factor a copy
3. The next day YourCompany gets a cash advance (agreed percentage of the invoices) from the factor.
4. The outstanding invoices get collected by the factor
5. YourCompany gets paid the outstanding balance, less the factor's fees.