1. A GUIDE TO FACTORING
© 2015 by Seed Finance Limited

2. © 2015 by Seed Finance Limited
An Introduction to Factoring
CASHFLOW IS ESSENTIAL TO THE SURVIVAL OF ALL BUSINESSES. UNPAID INVOICES HAVE VALUE SO FACTORING IS
A FINANCIAL PRODUCT DESIGNED TO IMPROVE CASH FLOW BY PROVIDING FINANCE AGAINST THESE UNPAID
INVOICES.
What invoices can be factored?
ANY PRODUCT OR SERVICE ON OFFER BY A PROSPECTIVE CLIENT TO ITS CUSTOMERS (ON CREDIT TERMS) CAN BE
DEEMED FACTORABLE IF THE PRODUCT OR SERVICE DELIVERED IS CONSIDERED “CONTRACTUALLY COMPLETE” WITH
A ROBUST AUDIT TRAIL (FROM CUSTOMER ORDER TO PROOF OF DELIVERY) AND VERIFIED BY THE CUSTOMER.
How does it work?
UNDER THIS ARRANGEMENT, THE CLIENT BUSINESS SELLS ITS INVOICES (BOOK DEBTS) TO THE FACTOR WHEN THEY
ARE ISSUED. THE FACTOR THEN PAYS THE CLIENT UP TO 85% OF THE GROSS INVOICE VALUE NORMALLY WITHIN 24
HOURS OF RECEIVING THE COPY INVOICES. THE REMAINING BALANCE - LESS CHARGES – IS PAID TO THE CLIENT
ONCE THE DEBT HAS BEEN COLLECTED.
How will it affect my day to day business?
FOR THE CLIENT IT IS ESSENTIALLY “BUSINESS AS USUAL”, THE ONLY VARIATION TO THE CREDIT MANAGEMENT
FUNCTION IS THE CUSTOMERS MAKING PAYMENT DIRECT TO THE FACTOR AND OCCASIONAL VERIFICATION OF THE
DEBT.
A GUIDE TO FACTORING
What are the benefits?
 QUICK DECISION
 FACILITY GROWS AS YOU
GROW
 ACCEPT BIGGER ORDERS
 IMPROVED CASH FLOW
 FLEXIBLE LENDING
 COMPLIMENTS OTHER
FINANCING (TRADE/ ASSET
FINANCE)

3. © 2015 by Seed Finance Limited
What are the Charges?
THE FINANCE CHARGE IS EXPRESSED AS A % OVER BASE RATE WITH DAILY INTEREST CHARGED ON THE FUNDS
IN USE (ON A COMPOUND BASIS) AND CHARGED TO THE CLIENT ACCOUNT AT MONTH END – JUST LIKE AN
OVERDRAFT.
THE SERVICE CHARGE IS EXPRESSED AS A % OF TURNOVER AND CHARGED AGAINST THE ASSIGNMENT OF EACH
INVOICE. FOR INSTANCE, IF THE LEVEL OF ADVANCE IS 85% AND THE SERVICE CHARGE IS 1.0% THEN THE CLIENT
RECEIVES 84% IN REAL TERMS OF THE ASSIGNMENT DEBT. THE CHARGE IS SUBJECT TO A “MINIMUM” MONTHLY
CHARGE.
IS A BANK OVERDRAFT CHEAPER?
ON PAPER, YES. HOWEVER, FACTORING TYPICALLY PROVIDE MORE WORKING CAPITAL THAN A BANK EVEN WITH THE
SAME SECURITY. A FACTORING FACILITY USUALLY RESULTS IN A CLOSE WORKING RELATIONSHIP BETWEEN FACTOR
AND CLIENT, WITH A DEEP UNDERSTANDING OF THEIR BUSINESS NEEDS.
WILL I NEED TO PROVIDE PERSONAL GUARANTEES?
PGS ARE A PREREQUISITE AS THE DIRECTORS / SHAREHOLDERS ARE REQUIRED TO WARRANT THAT THE INVOICES
PURCHASED BY THE FACTOR ARE GENUINE AND COLLECTABLE. IN A BUSINESS FAILURE SCENARIO A PG WILL
ENCOURAGE DIRECTORS TO ASSIST IN THE COLLECTION OF OUTSTANDING BOOK DEBTS. YOU CAN ALSO PURCHASE
PERSONAL GUARANTEE INSURANCE THROUGH SEED FINANCE LIMITED BY CLICKING HERE.
DO I HAVE TO SIGN UP TO A MINIMUM PERIOD?
12 MONTHS IS THE NORMAL CONTRACT PERIOD, WITH A NOTICE PERIOD OF THREE OR SIX MONTHS THEREAFTER.
FUNDING RESTRICTIONS?
THE LEVEL OF FUNDING IS GEARED TO THE INVOICES
RAISED AGAINST THE CUSTOMER BASE. HOWEVER, THE
PRODUCT IS FORMULA DRIVEN AND IF A KEY CUSTOMER
REPRESENTS A LARGE PROPORTION OF THE DEBT THERE
MAY BE A CONCENTRATION LIMIT IMPOSED BY THE
FACTOR.
THE CREDIT RATING OF KEY CUSTOMERS IS CRUCIAL FOR
SETTING SPECIFIC CUSTOMERS’ FUNDING LIMITS. THIS
CAN BE MITIGATED BY PURCHASING CREDIT PROTECTION
FOR SPECIFIC ACCOUNTS. OTHERWISE, THE FACTOR WILL
PROVIDE A DEFAULT FUNDING LIMIT FOR ALL OTHER
CUSTOMERS DEPENDING ON THE CHARACTERISTICS OF
THE SALES LEDGER.
WHAT IS THE COST?

4. © 2015 by Seed Finance Limited
Types of Invoice Discounting
CONFIDENTIAL INVOICE DISCOUNTING (CID)
This confidential facility involves a trust account and the client retaining the credit control function and sales
ledger management control.
DISCLOSED INVOICE DISCOUNTING (DID)
Same as above but with an assignment notice on each invoice “disclosing” the Factor’s interest.
CONFIDENTIAL INVOICE FINANCE
As CID but with the Factor operating a full shadow ledger
COMBINED INVOICE FINANCE
As DID but with the Factor operating a full shadow ledger and the Factor also receiving customers’
payments.
FACTORING
Full control – Credit management and sales ledger control, is passed to the Factor.
How can I found out more?
You can find out more by visiting www.seedfinanceltd.com and selecting ‘Services’ and then ‘Invoice
Finance’. Or alternatively call 01633 300 280 to speak to a member of our team.
Alternatively if you currently use, or are thinking of using Factoring or Invoice Discounting and would like
comparative quotes click below.
Seed Finance Limited is a Limited Company registered in England & Wales,
Registration No. 09694037
Registered address:
15 Forbes Court,
Newport,
S.Wales,
NP19 9BA
Email: info@seedfinance.com
Data Protection Registered No. ZA132532 Privacy Policy Terms & Conditions
DIFFERENT TYPES OF FACTORING

5. © 2015 by Seed Finance Limited
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