One of the main financial issues many companies in the UK face is cash flow, which may not be anything they are doing wrong. Sometimes, it’s simply a matter of uncollected debt owed to them, and without these funds, a business can come to a grinding halt.
Other times, it’s a matter of projects going on longer than anticipated or a lack of funds to buy supplies and materials needed for a major job. No matter what the issues are that you are facing, confidential factoring may be the solution you need.
What Exactly Is Confidential Factoring?
You may be familiar with the term “invoice factoring” in which you would basically be borrowing a cash advance against accounts payable. Perhaps your debtors are slow in paying and you are having difficulty chasing them down. This is the most common understanding of factoring whereby the lender takes over your ledgers and credit control so that they become responsible for collecting on those debts owed to your company.
As they are paid, you will be repaying them and the remainder is then transmitted to your account. Most lenders will lend up to a certain percentage of those accounts payable, so the overage is due to your company. But invoice factoring is not the only type of factoring business financing solutions available. That’s the good news!
Invoice Factoring vs Invoice Discounting
You’ve seen above how invoice factoring works. However, many businesses don’t want a third-party to take over collecting debts owed because they would rather not have anyone know of their cash flow issues. Even though all businesses face problems with cash flow at one time or another, it’s something they’d rather not have divulged.
This is where invoice discounting may be a better solution. Here, you are offered similar terms with loans, sometimes up to 90% of what’s due in your ledgers, but you maintain control of your accounts. You continue collecting as usual and pay the lender as per the agreements of your invoice discounting contract.
This allows you to keep control of your ledgers so that no one is any the wiser that you’ve run into temporary cash flow problems. It also allows you the freedom to continue communicating with your clients in the same way as always. If you’ve established a rapport over the years, you may wish to keep the status quo.
Lesser Known Types of Confidential Factoring
Operating under the same principle that funds are unavailable because debts have yet to be paid, it’s not really a matter of uncollected invoices but rather that work is at a point where you can’t actually invoice. This would often be the case with construction factoring.
Sometimes major construction projects can come to a halt if a contractor is lacking the cash flow to continue buying materials needed for the job. There is no way to invoice yet because the project isn’t complete, so some confidential factoring lenders offer what is known as construction factoring, payable when the job is complete and paid.
Recruitment factoring is another solution for either recruitment companies or businesses in need of hiring extra personnel without the capital to do so. For those businesses seeking to grow or expand operations, staffing is a must. The right recruitment factoring lender can actually handle all aspects of payroll from writing those checks to paying HMRC along with VAT and National Insurance (NI). However, not all recruitment factoring lenders include HMRC, VAT & NI.
Why Not Just Get a Conventional Small Business Loan?
In retrospect, looking back at all the above you may be asking yourself why not just get a small business loan? Unfortunately, that is not always the best financial solution and it may not even be available to you. The process for getting a conventional small business loan is much more involved than confidential factoring, which can have funds available to you within 24 hours. Conventional small business loans, on the other hand, can take weeks just for an approval and the paperwork can be mountainous!
Sometimes a company doesn’t have the established creditworthiness to qualify for a small business loan and other times, as mentioned above, the process is so lengthy that a business can quickly find themselves in unmanageable debt.
This is why so many businesses literally saved from being bankrupt are calling the various forms of confidential factoring the unsung heroes of commercial finance. Bear in mind that there is more than one type of factoring available to you based on your needs and more than one lender willing to enter a factoring contract. Your best option is to work through a factoring broker to find the perfect match for your financial needs.
When all is said and done, you’ll be thanking those unsung heroes like thousands of other businesses throughout the UK. They’ll be unsung no longer!
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