How does Factoring Work?
Invoices to customers
When you raise an invoice against a customer for goods or services sold it is sent to your customer as normal but an extra copy is also sent to your factoring company. The factor will advance you an agreed percentage of the invoice total in funds directly into your bank, usually within 24 hours.
Period of Funding
The period the debt is funded is usually up to 90 days or until the fourth month following date of invoice. As part of this service they will also send out statements of account to the customer as well as chasing payment through letters and telephone calls. The fee for this advance is called the Facility Charge.
Advance against Invoices
A factoring company will typically advance between 65% and 85% of the value of an invoice as soon as it’s raised depending upon their assessment of the risk. This risk assessment will include elements such as which industry your company operates within, the concentration of customers and invoices and other related facts.
Recourse Factoring
Factor 21 specialise in a ‘flavour’ of factoring called recourse factoring. This is also sometimes called invoice factoring or accounts receivable factoring. It is the most common factoring arrangement in business today.