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Explains how factoring companies are attempting to provide facilities to suit the small business.
The problem with factoring is that the normal costing methods used by factoring companies tend to penalise the smaller business. Most small businesses will find that they will be offered a facility but the cost of the facility would be too onerous to be acceptable to the business. For example if a business has only a turnover of £200,000 and the factoring company requires a minimum administration fee of £5,000 per annum this would equate to percentage rate of 2.5%, on £100,00 turnover it would be 5% and on £50,000 it would be 10%. Obviously this would be far too expensive to be an acceptable proposal.
But the funding released by the factoring facility could allow the business to continue to grow and perhaps reach a target turnover of £500,000 by using the improved cash flow that factoring provides. In this instance the £5,000 minimum fee would represent a percentage charge of only 1% - a far more acceptable proposition.
But how can you afford the factoring facility when your turnover is small (under £200,000 say) to allow you to expand your business to a medium size (over £500,000 say)? It would appear that when you are a small the provision of a factoring facility to allow you to grow is beyond your reach because of the high cost.
However help is at hand. Several factoring companies are making attempts to accommodate the smaller client with facilities designed to offer factoring facilities at an affordable price.
One such factor, Close Invoice Finance Ltd have launched their own small factoring facility with a minimum annual factoring charge of £2,000 per annum – this would equate to 1% on turnover of £200,000. The attraction to Close is that if as a result of factoring the business is able to grow its turnover to say £500,000 per annum Close will then earn at 1% the £5,000 minimum income it normally requires. Therefore both parties, the small business and the factoring company, are winners. The factoring company gets its £5,000 minimum income; the small business gets to achieve the growth it was seeking in order to increase its profitability.
Two other factoring companies offering similar facilities are Hampshire Trust Factors Ltd and London Scottish Invoice Finance Ltd.
If you wish to know more please e-mail us at advice@getfactoring.com.
Alternatively call us on our UK Freephone 0800 328 9784
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