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What is debt factoring?
Debt factoring is when a business sells its accounts receivables to a third party at a discount, enabling companies to immediately unlock cash tied up in unpaid invoices without having to wait the usual payment terms.
Debt factoring is also another term used for invoice factoring.
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Other types of factoring
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Spot Factoring
Spot factoring is a way for a business to access funds by selling unpaid invoices to a 3rdparty, a spot factoring company, on a one off basis in order to receive payment quicker.
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Reverse Factoring
Reverse-factoring is a financing option where a 3rd party financial provider finances the supplier on behalf of the buyer.The process involves the supplier, the buyer and the finance provider .The supplier sells the buyer’s unpaid invoice to the finance provider and receives the cash quickly, the buyer also gets longer to pay for its goods.
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Recourse and Non-Recourse Factoring
Resource factoring is a form of finance where a company sells its invoices to a factoring company. The factor pays the company a percentage of their cash value and then chases up payment of the invoices on behalf of the company. Non-Recourse factoring is a form of finance where a company sells its invoices to a factor and receives a percentage of the cash value from them.
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What are the advantages and disadvantages of debt factoring?
Advantages of debt factoring:
- Improved cash flow - release money tied up in unpaid invoices and boost your cashflow
- Save time- relieve your business of the burden of credit control and concentrate on your core business
- Bargaining power-debtfactoringcan help you to negotiate better terms with your suppliers
- Faster growth- grow your business at a much faster rate due to the flexible funding line
Disadvantages of debt factoring:
- Reduces overall profit- the factor always charges a percentage of the overall invoice value
- The factor takes control of the collections process - although a positive for many SMEs, some businesses may want to retain this control and maintain their own relationships with their suppliers. We do have other products available that allows SMEs to keep control so please contact us to discuss this in more detail.
How does debt factoring work?
Debt factoring is a form of business funding and uses one of the most significant assets your business has - your accounts receivable.
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Your debt factoring provider will chase the debtors for payment of the invoices and collects the full invoice payment from your customer and pays you the outstanding amount, minus a small fee.
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The business will be given up to 90% of the invoice value almost immediately from the point of raising the invoice, therefore reducing the cash deficit for the small business.
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Debt factoring companies are proven to help businesses grow and prosper and is an excellent alternative to a bank overdraft.
Is debt factoring right for your business?
Generally speaking, debt factoring is best suited to companies that sell to other businesses on credit terms, and turnover more than £50,000 a year.
Expand your operations
Invest in stock, machinery or equipment
Employ new members of staff
Fix long-standing issues with cash flow
Why choose debt factoring with Novuna Business Cash Flow?
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Flexibility- your funding line increases at the same rate as your turnover meaning that you don’t need to renegotiate terms.
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Improved cash flow- release money tied up in unpaid invoices and boost your cash flow.
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Bargaining power - Debt factoring can help you to negotiate better terms with your suppliers.
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Faster growth- grow your business at a much faster rate due to the flexible funding line.
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Award-winning service- benefit from our award-winning client service.
We are an award winning debt factoring company
Alternative SME Lender of the Year 2023
SME Lender of the Year 2023
Best Use of Technology 2023
Best Provider 2023
Commended SME Finance Innovation 2023
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Our debt factoring service is highly recommended by our customers
"The communication and support has been outstanding.Providing me with all the information I needed regarding new clients coming onto our books. The system they use is souser friendly and the drawdown payments are very efficient in the fast moving world of temporary payroll."
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Please note that costs are an estimate only and are based on the entered values. Your final quote may change once a Business Development Manager has assessed your business in more detail.
Debt factoring has been revolutionised with our digital onboarding process
Get in touch
Contact one of our debt factoring experts today on our freephone
0808 250 0859
8:45 - 17:15 - Monday to Thursday &
8:45 - 16:45 - Friday
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Want to learn more about how you can boost your businesses cash flow?
Our Cash Flow Resource Hub has been set up to help SME's with cash flow finance advice, tips and resources to help with their cash flow position.
We explore ways you can begin improving your cash flow situation and start getting your business on track to positive cash flow.
Cash flow resource hub
Why choose Novuna Business Cash Flow?
6 month trial period
A 6 month trial period so you can be sure the product is right for you, followed by a 6 month rolling contract – we don’t tie our clients in for long periods.
Digital onboarding
We are the first in the market to offer a digital onboarding process and have been leading the way with our digital capabilities allowing clients to sign up within 24 hours from the first appointment.
Client trust account
Once you become a client you will be given your own trust account, meaning you will get same day availability on your funds. You can also view all of your invoices and payments online at a time suitable to you, 24/7.
No uncleared effects
We have heavily invested in our digital capabilities. This includes the auto allocation of payments using Artificial Intelligence. Ultimately this advance in technology means that our clients access money quicker as well as saving money on interest charges due to auto allocation.
Simple pricing
We aim to make the process of Cash Flow finance as simple and straightforward as possible. Our pricing is very straightforward to understand. For a no obligation quote or an informal chat you can call our friendly team today on 0808 250 0859.
Award winning service
We offer award-winning client services and individual Relationship Managers who are on the other end of the phone or out in the field to visit you in person.
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