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Best Invoice Factoring Services for Small Businesses

Invoice factoring is the process of selling an invoice to the factor in order to access funds quickly. Small businesses are particularly at risk when it comes to cash flow problems so it can make a huge difference by employing the services of a reputable invoice factoring company.

What is Invoice Factoring?

As previously mentioned, invoice factoring is a method of accessing the funds of unpaid invoices to free up cash flow. There are two different types of factoring, non-recourse, where the factor (provider) takes on the liability of debts (invoices) owed to you and full recourse factoring, where the debts remain the responsibility of the client. The latter is by far the most common type and non-recourse factoring is very rarely available to small businesses.

small business

Advantages

There are many reasons why a small business might consider using an invoice factoring provider and there is little doubt that the advantages can be considerable. These include:

  • Freeing Up Cash Flow
  • Efficient and Professional Services
  • Reduction In Debt Risk
  • Better Planning

Freeing Up Cash Flow

The main reason most companies will enter into a contract with an invoice factor is the freeing up of future funds that would otherwise forever be held up as pending. The advantages of this are manifold, some of which to come, but it can be of particular use for small companies who might otherwise struggle to survive the day-to-day running of the business.

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Efficient and Professional Services

The factor will not only provide a small business with future funds, they will also take on the responsibility of invoicing clients and collecting payments. Not only does this free up time for you or your staff to focus on the running of the business, it also presents a professional face, which can be beneficial in two ways.

Firstly it presents a small business in a positive light, which can in turn lead to further business and trust. Secondly, studies have shown that clients who receive professional invoicing are far less likely to query your service and far more likely to pay promptly.

Reduction In Debt Risk

As previously touched upon, non-recourse factoring means the factor will take on the liability for the invoices you present to them. This eliminates the risk of non-payments from companies who become insolvent. Unfortunately this is not an easy method of factoring for small businesses to acquire but that does not mean there is a reduction in risk from debt.

Because you are essentially selling future profits to the factor, this can be a much less risky approach to funding compared to bank loans. which are typically secured against a company’s assets.

Better Planning

By receiving funds promptly, typically within 24 hours of presenting the invoice to the factor, small businesses are able to plan further ahead than would have been previously possible. This can have a positive effect on everything from ad campaigns to expansion of services.

Another benefit is the ability to take advantage of bulk supplies, which are generally available at a much cheaper rate. In the long run this can lead to significant savings and a more reliable service to your customers.

Disadvantages

Although these advantages can be significant for many, that is not to say that invoice factoring will suit all. Certainly it pays to research the subject and any potential contract thoroughly before committing. The main disadvantages for small businesses include:

  • Costs
  • Lack Of Control In Certain Areas
  • Contracts

Costs

While it isn’t the most expensive method of funding, the costs can be considerable over time. As previously mentioned, it pays to research possible contracts thoroughly but many businesses are simply not suited to the process and might be better off with other funding methods.

Lack of Control in Certain Areas

By employing the services of a factor you are essentially outsourcing certain areas of the business. This has some previously mentioned advantages but many find it difficult to relinquish control over how they interact with their clients.

Contracts

Some factoring contracts can be lengthy, meaning there is a long term commitment to the process. This can be an issue for some, particularly if the contract does not allow a business to grow over time. Again, it pays to understand the implication of a factoring contract before signing.

Best Factoring Companies for Small Businesses

Small businesses have particular needs when it comes to invoice factoring and it can be difficult for many to obtain the services in the first place. Below are some of the most reputable and welcoming factoring companies for small businesses in the UK.

  • Ashley Business Finance
  • Aldermore
  • Bibby Financial Services
  • RBSIF

Ashley Business Finance

Very few invoice factoring providers in the UK are exclusively set up to work with small businesses and have the reputation of Ashley Business Finance. Because of this, Ashley provide a method that is perfectly suited to small enterprises, such as allowing their clients to collect debts, maintaining the kind of personal touch that is essential for small businesses.

Aldermore

Offering their services to a vast range of sectors, shapes and sizes of business, are very highly regarded by those within the industry. Convenience is at the heart of the process, which is perfectly suited to those who have little or no experience dealing with debt collection and invoice processing.

Bibby Financial Services

Bibby provide one of the simplest and most efficient methods of invoice factoring with some of the most competitive rates. Unlike some factors, which take over every aspect of the process, Bibby require their clients to invoice their customers. Although some might want their factor to also take over this part of the process, for some this is preferential.

RBSIF

Although RBSIF do not provide the most accessible factoring service, you are required to have an annual turnover of over £250,000, it would be remiss to not include them in the list. Innovative, transparent and reliable, they provide one of the most popular invoice factoring services in the entire country.