Full Factoring

Full Service Factoring, or Factoring as it is usually called, is the provision of sales ledger management as well as funding. More usually offered to the weaker client, as the Factor has more 'connection' with the underlying security.

Full Factoring Advantages

Although the facility is disclosed to your customers, there are advantages particularly for the smaller company. The whole function of managing the sales ledger, sending statements, chasing money, and allocating payments is effectively outsourced. This should:-

• Relieve the cost of employing staff to manage the sales ledger and collections function, as well as the associated telephone, post and stationery costs.
• Allow management to focus on sales rather than collections.
• Result in funding savings and more availability of cash as professional credit control from the factor should result in improved cash flow.
• Removes the potential for customer conflict when payment delays arise, as the factor is handling collection along pre-agreed guidelines
• Efficient handling of difficult 'delinquent' debts, resulting in fewer bad debt write-offs.

Full Factoring Disadvantages

• Disclosure - although factoring is commonplace nowadays, many would prefer a confidential facility.
• As with any outsourcing arrangement, it is easy to abdicate responsibility.  You should still keep on top of the quality of sales ledger management you are receiving - another reason why the relationship with your factor is so important.

Typical Factoring Costs

For Full Factoring, this will depend upon the workload of the sales ledger, and costs are arrived at after considering turnover, number of customers, the number of invoices raised, and proportion of credit notes.

• Service Charge - likely to be between 0.5% and 3% of VAT inclusive turnover.
• Finance Charge - funds advanced (you do not have to draw down all the available sum from your invoicing, only what you require), is likely to be between 2%-3% over bank base rate. This will be a lower rate than today's typical overdraft or business loan.
• Bad Debt Protection - around 0.5% (calculated on only the insured portion of pre-vat sales).