Corporate profile

You approach a Factor - whose involvement with yourself will be shared with your customers - and they undertake the role of credit management for your business.

In return, the Factor will provide advances on outstanding invoices - generally those less than three to four months old - and some Factors offer as much as 100per cent of your outstanding invoice amount. The money can be transferred into your account that same day.

A factoring arrangement can be set up within days, if your business is a reasonably small one with accounts in good order, that timescale can be reduced to just days.

As a rule-of-thumb, the charge to your business of receiving such a facility is three per cent over base rate for the money borrowed, along with a service charge. The level of the service charge will be negotiated and will depend on a number of variants, including your business profile.

A Factor normally steps in when a small business gets carried away with getting the ‘next big order' without realising they may not have the cash to deal with it.

Many are actually part of a big bank which may have turned you down for an extension to an overdraft or a loan.

A Factor will lend you certain percentage of each invoice you issue. It will then collect the invoice when it becomes due and pay the balance back to the issuing company.

The Factor charges a fee, usually a very small percentage of the value of each invoice, and interest on the amount of money borrowed.

There are many companies to choose from, and there are still independent firms out there among the established banks.

It is advisable to approach more than one firm before deciding who to go with, alternatively you can log on to websites which will compare your details to the firms most likely to be able to help you.

There are also a number of factoring brokers who will negociate on your behalf. Many factoring firms will let you talk to other clients. Reputation and references are important to good factoring companies.