Cash inflow is the moving force of any profit-making organization out there. As a business, you typically get this cash from customer payments, investors, and loans.
It is from this inflow of money, that you are able to finance the day-to-day operations and also expenses incurred by the business. This could be marketing costs, salaries for your employees, insurance costs, purchase of raw materials, transport, license fees, and so on.
Now you must wonder, where do invoice factoring companies come in? Let’s find out.
Table of Content
- 1 What Is an Invoice Factoring Company?
- 2 What Is the Best Factoring Company?
- 3 Is Invoice Factoring Worth It?
- 4 How Much Does a Factoring Company Charge?
What Is an Invoice Factoring Company?
An invoice factoring company can simply be defined as a firm that hands you immediate cash in exchange for your invoices. Of course, as such a bargain puts the factoring company at risk of customer default, you would have to incur a fee. The fee also covers the processing costs incurred by the company along with a number of other costs that we’ll explore later on.
Unlike cash advances, where you incur massive interest rates, invoice factoring gives you an opportunity to get quick money and at way cheaper costs. This fast money immensely aids in the maintenance of your organization’s cash flow.
Steady cash flow means you can buy more raw materials and provide more services to other clients. You wouldn’t be able to do this effectively if you have to wait for a month or more to receive cash.
What Is the Best Factoring Company?
As in many other populated service sectors, it is difficult to single out the best company among the rest. However, it is possible to put together a list of the best firms in the industry and leave you to decide on one that best suits your business.
This is exactly what we are going to do. The following is an extensive and well-expounded list of the best invoice factoring companies out there.
Hitachi Capital (UK) PLC
With more than 1.4 million customers and earning assets worth £5.9 billion, Hitachi Capital (UK) PLC is a high-ranking invoice factoring company in the UK. It is an offshoot of Hitachi Capital Group and has existed for more than 30 years.
Hitachi Capital (UK) PLC, allows you to access up to 90% of your money from the invoices submitted. The application process is simple and quick. Once you’re done, and the invoices are approved, you will receive your money within 24 hours.
Apart from invoice factoring, Hitachi Capital (UK) PLC offers a range of other financial services. They include personal loans, car loans, home improvement loans, leisure loans, small loans, vehicle leasing services, asset finance, credit control, and advisory services.
While most invoice financing companies lure customers with hidden fees, Hitachi Capital (UK) PLC ensures transparency within the process. They will inform you of any fees that you’ll incur. This makes repayment easy and most importantly, conflict-free.
The fact that this invoice factoring company is born out of a long-standing organization, makes it an invoice finance firm we would certainly recommend.
Also, the company happens to be an avid believer in customer satisfaction. They always strive to innovate their products in a way that best suits their clients. This has enabled them to win a number of awards over the years. One of their most notable awards is probably the Best Direct Personal Loans Provider from YourMoney.com awards.
Skipton Business Finance
Skipton Business Finance is the subsidiary company of one of UK’s biggest building societies—The Skipton Building Society. For generations, this parent company has been providing financial services to the people of the UK. This helped it build a client base of over 1 million people and in 2001, formed the Skipton Business Finance.
The invoice factoring process for Skipton Business Finance is similar to other companies in this industry. They will purchase your invoice and present you with fast cash. This typically takes 24 hours. From there, the credit control department will take over and begin the process of collecting the invoice amounts from clients.
What we found particularly enticing about Skipton Business Finance is the Skipton select. You see unlike many invoice factoring companies, Skipton Business Finance offers a variety of invoice factoring solutions for you to choose from. Skipton select happens to be one of them.
This invoice factoring solution rids you of the pressure of having to pay annual renewal fees and bank charges. All you need to pay is the monthly fee and a facility fee which will depend on your number of invoices.
Both the monthly and facility fee will change based on the turnover of your business. This gives an opportunity for start-ups to also take advantage of this financing method.
Other invoice factoring solutions you are likely to encounter with Skipton Business Finance are the disclosed invoice factoring, recourse invoice factoring, bad debt protection invoice factoring and SMEs tailored invoice factoring. They also offer invoice discounting services.
Bibby Financial Services
For over 30 years, Bibby Financial Services has been assisting UK businesses, both large and small, with a wide range of financial services. Being a subsidiary of Bibby Line Group—a 200-year-old successful business—you expect nothing but the best service delivery. And, indeed, this invoice financing company does live up to the standards set by its parent.
While a great number of invoice factoring companies are reluctant to accept invoices that are 90 days overdue, Bibby Financial Services fearlessly purchases such invoices. This alone gives it a significant advantage over many other invoice finance companies.
However, you always need to assess the fees and ease of application when reviewing any invoice factoring company. While their exact fees are somewhat difficult to come by, it does range between the 1 and 5% bracket which can be considered an industry standard.
The application process is pretty straight forward as every step is carried out online.
Bibby Financial Services will first assess the credit scores of your clients. This means that the fate of your approval entirely lies in the hands of your customers. If the scores are satisfactory, then the invoice finance firm will accept your invoices and if found wanting, then there is a huge possibility they will decline.
Like most invoice factoring companies, Bibby Financial Services will fund your account within 24 hours upon approval. You can get up to 100% of your invoice value in cash.
The remaining amount, if any, will then be presented to you after a successful collection of the payments from your clients by the credit control department. Of course, they will deduct their fee from the amount.
If you encounter any issues during the process then you can contact their support. They are always warm, sociable, and ready to help their clients.
Other financial services offered by this invoice finance company include asset finance, invoice discounting, corporate funding, export finance, trade finance, and cash flow management.
Close Brothers Invoice Finance
Close Brothers is a multiple award-winning invoice finance company that has been in existence since 1968. They offer services like invoice discounting, invoice factoring, bad debt protection, asset-based lending, and liquidity plus products.
To get access to their invoice factoring services, you would have to be generating a turnover of £500,000 or more annually. Close Brothers can provide you with cash worth up to 90% of your invoice value.
The two major fees you’ll incur in the process are the service and discount fee. The service fee will cover your account administration services while the discount fee covers the drawdown costs.
Since Close Brothers Invoice Finance services businesses of varying sizes, these fees will be readjusted. Other factors considered when determining the fees include the invoice value and creditor payment periods.
If you would like to know how much money your business may be able to gain after the release of your unpaid invoices, then you can use Close Brother’s free invoice finance calculator.
The invoice finance calculator allows you will select the industry you’re in and include your annual turnover. From there, it will display the potential cash available for your business.
To better understand their services and also get advice, you can schedule a free consultation with Close Brothers. The invoice factoring company is equipped with a competent group with years of experience starting right from the top.
Market Finance Limited
Unlike most of the invoice factoring companies we’ve seen so far, Market Finance Limited takes a different approach to the invoice factoring. As a matter of fact, it mostly does invoice discounting. We’ll point out the difference between the two later on.
Market Finance is composed of a team of reputable investors who purchase invoices from small businesses. Most invoice finance companies are subsidiaries of large financial institutions. That is not the case here.
Market Finance serves as a platform that links potential investors to businesses seeking loans and invoice finance. It is funded by the likes of the British Business Bank and Barclays UK; both, highly respected financial providers in the industry. Other investors include wealthy individuals and family offices.
Being an investor with this invoice factoring company, not only gives you an opportunity to earn more, but also allows you to assist small UK businesses in their development journey.
To be eligible for the invoice finance services provided by Market Finance, you’ll need to be situated within the UK or Ireland. Your business should also be able to generate a turnover of £100,000 or more annually.
Now, let’s address the difference between Invoice discounting and invoice factoring. While both help to improve the cash flow of your company, the invoice discounting allows you to keep your sales ledger and do the collection as well as invoice processing on your own.
The application process here is quick. You’ll need to submit your recent statutory accounts, your firm’s financial information, and your bank statements dating back to the last 3 months. From there, you’ll add a customer then your invoices and wait for verification.
Market Finance will assess the details and give their response. Within 24 hours of approval, funds of up to 90% of your invoice value will be deposited into your account.
Aldermore Invoice Finance
Aldermore was established in 2009 and since then, has been growing by the day. It has accumulated numerous awards distributed across the years 2014, 2015, 2016, 2017, 2018, 2019, and 2020.
This successive recognition of Aldermore Invoice Finance undoubtedly points to its ability to remarkably carry out its financial services and satisfy their customers.
For you to acquire invoice finance from Aldermore, you will need to have an annual turnover of £250,000 and above. If you meet this, and every other requirement set by the invoice factoring company, then you can receive up to 90% of cash from your invoices.
As the company understands just how essential the cash is for your business’ cash flow, they carry out their approval process as fast as possible. Once you’re approved, funds will be sent to you within 24 hours.
Aldermore Invoice Finance also understands the need for confidentiality in the process, and therefore, ensures your clients do not know you are utilizing their services.
The fees charged by Aldermore depend on your business size and turnover. As a rule, you will be required to pay a discount fee as well as a service fee. The former ranges between 1.5 and 3% while the latter ranges between 0.25 and 3%.
In addition to invoice factoring, you can also get a number of other services within the facility. They include asset finance, invoice discounting, property development finance, and commercial mortgages services.
Lloyds Commercial Finance
Lloyds Commercial Finance is a constituent of Lloyds Bank PLC. It offers an array of financial services to clients. You can get invoice factoring services, invoice discounting services, asset finance services, and mortgage services.
However, our primary focus today is its invoice finance services. Before we take a look at the service, it is important we point out that, you don’t have to be a member of Lloyds Bank to receive the invoice finance service.
As in most invoice finance companies, you will be required to present your sales ledger along with some other statements if you opt for invoice factoring.
To be eligible for the invoice discounting service offered by Lloyds Commercial Finance, you will need to have an annual turnover of £250,000 or more.
The turnover requirement is significantly reduced if you choose to go for invoice factoring. You will only be required to have an annual turnover of £50,000 or more to get the service. This is obviously to allow more small businesses to acquire cash to improve their cash flow.
Lloyds Commercial Finance can give you up to 90% of your owed invoices. This invoice finance company is unbelievably transparent with their fees. They have a comprehensive PDF that lists all the fees you might encounter in the course of the invoice factoring process.
Some of them include the transaction fee, additional support fee, sales ledger chase fee, manual schedule fee, breach fee, litigation fee, audit fee, and a 3rd party fee. All will be listed for you along with their meanings and occasions in which you might be required to pay for them.
IGF Commercial Finance
Headquartered in Redhill, this invoice finance company is not short of notable achievements. It issues over £100m monthly to small businesses all over the UK. Their average client turnover exceeds £1 billion, and in 2019, they were able to secure 42 asset based lending deals.
Asset based lending is a hybrid funding solution that combines stock financing, invoice factoring, invoice discounting, and other finance options. This helps you raise a substantial amount of money for your business. However, the financial solution may require you to provide inventory, business property, or equipment as security.
Generally, this invoice finance company services sectors such as manufacturing, care, construction, gas, food, wholesale, and business services. They offer invoice discounting, invoice factoring, inventory services, cash flow loans, and property services.
According to IGF, an SME is a business that has a turnover of between £1million and £100million. Therefore, it is a requirement for any business applying for their invoice factoring service to have an annual turnover of £1 million or more. This invoice factoring company can provide your business with up to 90% of your invoice value in cash.
Like most invoice finance companies, IGF will give you a client manager who will help you in case of any challenges. As invoice factoring companies have hundreds of clients to service, they often assign a single manager with as many as 100 clients. This, more often than not, makes customer satisfaction difficult.
With IGF, one client manager is in charge of about 45 clients. This ratio is extremely effective in ensuring the best service delivery.
IGF has worked with Aran, Ortho Solutions, Harper’s Environmental Services, and StanChem International. Apart from Redhill, they also have offices in Manchester and Birmingham.
Bluevine is a leading factoring company and undoubtedly one you’ll encounter in your pursuit of the best factoring company. Aside from providing exceptional services, Bluevine limits the barriers of approval by offering extremely lenient requirements for businesses seeking invoice finance. One of the most notable ones being, the 530 and above credit rating requirement.
As per the Fair Isaac Corporation, popularly known as FICO, a credit score of 530 is considered very poor. Most companies would refrain from offering their financial services to such businesses. However, this invoice financing company does, and that makes it quite an alternative for small and upcoming businesses.
A quick look at the background of Bluevine shows that, since 2013, they have been able to support more than 125,000 small businesses by supplying more than $6.5 billion in finances. They also have a highly experienced and well-diversified team. From the chief executive officer down to the marketing leader, you are assured of the competency that the company holds.
This invoice financing company provides funding from $5000 all the way to $5,000,000. Their rates can start from as little as 0.25% per week, however, they will consider a number of factors before determining the rate.
Bluevine’s approval process is pretty quick. The entire application can be completed online and within 24 hours, you will be informed of their decision. If approved, funds will be deposited into your account in a matter of hours.
Giant Group PLC
Situated in London, Giant Group plc has been offering a range of services to businesses in the UK for nearly 3 decades. They predominantly focus on the recruitment sector. So if you’re a recruitment agency seeking support services like employment solutions, risk management or job application review then this is the company for you.
Giant Group plc has a section called Giant Finance+ which deals with matters such as funding and software services for its clients. They can provide up to 100% invoice finance. Most invoice financing companies limit their invoice funding to 90% which makes Giant Group an excellent choice.
In addition to this, they also provide credit control services, sales ledger verification services as well as bad debt protection. That means you don’t have to pursue your debtors to pay. You can entrust Giant Group with the task.
Is Invoice Factoring Worth It?
Invoice factoring is extremely beneficial to companies all around the world. Here’s why.
- You get instant cash flow. Invoices normally have timeframes for payment. As per the policy of many businesses, this could be 2 weeks, 1 month, 2 months, and if you’re lenient enough, maybe 90 days. As a business, waiting for this long can severely affect your day to day operations. Invoice factoring ensures you get cash instantly and this enables you to pay your expenses and even provide more services to other clients.
- You can outsource some duties. Following up on overdue invoices is not only a demanding task but also time-consuming. Moreover, your business might not have a credit control department to carry out the functions. Invoice factoring companies can do this task for you while you focus on other important business matters.
- The approval chances are high. While your credit score is considered by many invoice factoring companies, they are not as strict as other lending services. As a matter of fact, if you’re applying for an invoice factoring service or an invoice discounting service, you won’t have to place collateral as seen in loans.
- There is no dilution of equity. Invoice discounting and factoring as sources of business finance allow you to maintain full ownership of your business. This becomes a completely different case if you choose sources of finance like investors.
How Much Does a Factoring Company Charge?
The discount charge, fee or rate is the most common fee charged by invoice factoring companies on your total invoice value. The standard range is between 1.5 and 5 %. So if the invoices factored have an invoice value of £20,000, and your factoring service provider charges a 2% discount rate, then you will have to pay £400. It is important to point out that this fee is charged monthly.
The following are other fees your business might encounter.
The factor fee. This is a fee that is charged on all of the invoices handled by the factoring company. This fee tends to favor businesses with larger invoices.
Application fee. The application fee is the fee that starts the invoice factoring exercise.
Credit review fees. Before an invoice factoring company is able to finance your business, they will need to analyze your credit history. Sometimes, even that of your clients. Some factoring service providers will charge you a fee for this.
Mailing fees. Invoice companies, with your permission, can communicate with your clients. If your finance choice allows them to do so, then your business will incur mailing fees.
There are a number of cunning invoice factoring companies, and if you’re not careful then you may end up falling into their trap.
Before selecting any invoice factoring service provider, you should evaluate all their fees.
If you’re unable to acquire them on their website, then you should contact support. This will relieve you of the pain of having to pay fees you were unaware of.