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How can invoice factoring help a new start business?

Invoice factoring is a form of finance that is readily available to new start businesses in the UK. It can provide valuable working capital from when the business starts trading. Unlike other forms of finance that may require a trading history or additional security, invoice finance relies on the processes you employ as a business and who the customers are that you invoice.

Invoice factoring will release cash into your business. As you raise invoices up to 90% of the gross invoice value is released as cash allowing you to pay wages and suppliers. This can be a real lifeline in the early days when cash is tight and it means that you don’t have to worry about customers paying you late.

Summary of benefits for a new start business

  • Readily available to new start businesses
  • Releases up to 90% of the gross value of invoices as you raise them meaning you do not have to wait for customers to pay.
  • The outsourced credit control means that you can focus on growing your business.
  • Typically no additional tangible security is required.
  • No trading history is required.
  • The facility can include bad debt protection if required which can protect your business against bad debts.

What should you look out for?

As a new start business you need to be aware of a few considerations when setting up an invoice factoring facility. We speak to many clients who have set up a facility and there seem to be some common mistakes.

Minimum fees: if your turnover is likely to be low in the first year it is important that you set up a facility with a flexible fee structure. Some lenders impose a minimum fee on their facilities which can be preventative to some new start businesses. There are specially designed products available to small businesses with lower turnover and it is important to consider these.

Concentration limits: we often speak to clients who in the early days can be reliant on one large customer. Unfortunately, some lenders impose concentration limits on their facilities meaning that they restrict the amount of ‘eligible debt’ to one customer. This can mean that funding is restricted and the cash that you are hoping for is not generated by the facility. It is important to anticipate this and where possible set up a facility with a 100% concentration limit or one large enough to accommodate your largest customer.

Understand total costs

It is important that you understand what the fees are and how they are applied. Some lenders have a ‘bundled fee’ for new start businesses meaning that there is a single charge on each invoice. Other lenders simple charge a service fee and a discounting fee while others will have fees for various different services.

How can Smart Factoring Quotes help?

Smart Factoring Quotes can help you structure a facility that will work for your business. We understand what is important to new start businesses and we ensure we structure a facility that is fit for purpose and cost effective.

Get a free bespoke factoring quote or call us on 0845 863 0738 to discuss your requirement in more detail.

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