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Factoring Explained

Factoring is fast becoming the most popular  working capiatl facility proving a life line to many busineses. Factoring is the process of obtaining cash against your inpaid invoices typically up to 85% of the total amount. A specialist factoring company wil use  the unpaid invoice as their security and if anything happens to your business the finance company will collect the unpaid invoices to repay the debt. Factoring or even invoice discounting is great for a business that has a turonover of over £100k and if yur businesss is growing fast it will provide to working capital to fund purchaases of new stock and pay those all importnat bills.

Costs vary depending upon the size of your debtor book, the number of invoices you raise on a monthly basis nd the work involved in colecting your invoices. Rememeber factoring is a value aded service in that the factoring company also provide you with crerdit control to collect and chase your invoices leaving you free to get on with running your business.

There are two parts to the costing for a factoring service.  Firstly there is the cost of the money borrowed. This is comparable to a bank overdraft facility and is you charged at 1.5-3% over bank base rate or LIBOR depending on the finance company involved. Beware certain finance companies have a minimum base rate which could make thir headline rate be more expensive han it actually apears at first glance.

The second part to the charge is a service fee which is the charge in relation to the credit control part of the service. Depending on turnover, the number and the quality of your debtor book a small business with a turnover of over  approx £100,000 may expect to pay a few hundred poundds per month. Obviously this increases a st eturonover of the business also increses. Remember that the service fee compared to the cost of employing a full time crdit controller is very competeitive.


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XL Business Finance Ltd is a privately owned and independent business financing company with established links to many of the UK's leading finance houses. XL Business Finance provides a viable alternative to high street banks that lack the flexibility and imagination to provide a solution to most business users requirements. XL Business Finance can provide a full range of business financing solutions and we ensure a high level of customer service and pride ourselves on quick decisions. Our independent status will ensure any offer of funding and asset finance leasing is best suited to our customer’s needs.

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