Introduction
Over the past few years, especially with the changes we faced during the global pandemic, business’ borrowing needs have changed. Small and medium enterprises (SMEs) are on the lookout for innovative financial solutions to help them navigate issues with cash flow and be able to grow sustainably. One of these solutions that many businesses are choosing is invoice finance – an umbrella term for borrowing against unpaid invoices. Types of invoice finance include factoring, selective invoice finance and the type which we will be discussing in this article, confidential factoring.
What is Confidential Finance?
Confidential factoring is a form of borrowing which allows you to release cash from outstanding invoices. It generally works as follows: Confidential factoring is a form of borrowing which allows you to release cash from outstanding invoices. It generally works as follows:
1. You send your invoices to your customers as normal
2. You also send a copy of the invoice to your chosen confidential factoring lender. They then release up to 90% of the gross invoice value straight away.
3. The invoice finance lender then conducts credit control as if they are calling from your business.
4. The remaining 10% is made payable to your business once your client pays, minus the lender’s fees.
The Benefits of Confidential Factoring
Improve Your Cash Flow
The most significant benefit of confidential factoring is the immediate improvement for a business’ cash flow. SMEs who trade on credit terms with other businesses often face the burden of waiting 30, 60 or even 90 days for customers to pay. Confidential factoring allows you to grow your business by getting paid quicker – you have the working capital to move onto the next job/order sooner.
Professionalism
Confidential factoring is a great option for businesses who wish to look more professional, as if they have their own internal credit controller. If you have a small team, confidential factoring might give the impression to your debtors that when they receive a phone call regarding payment, you have an extra member of staff who conducts credit control.
Financial Flexibility
For SMEs, financial flexibility is key to seizing growth opportunities. Because the invoice finance lender can speak to debtors directly, they can feel more comfortable that the invoices are genuine. Giving a lender that sense of security may allow them to be more flexible in other areas.
No Additional Debt
Unlike traditional loans, confidential factoring does not add to a company’s debt burden – you are only able to borrow against funds you are already owed.
Streamlined Operations
Having a confidential factoring facility can save time and money by no longer having the hassle of chasing customers for payment. If you have the working capital to successfully move onto your next job, not having that administrative burden can help you concentrate on that growth.
Scalability
As your business grows, so can your funding. You may be a start-up company, or currently have a smaller sales ledger – but as you grow, so can your confidential factoring facility. As you build your relationship and trust with your lender, the amount you borrow against unpaid invoices has the potential to grow and scale with your business.
Conclusion
Confidential factoring is one option within the world of invoice finance. If you are not quite sure which type of invoice finance facility is suitable for your business and your needs, we highly recommend that you work with a broker like us – Contact Business Finance. Based in the West Midlands, Contact Business Finance is a commercial finance brokerage specialising in invoice finance. We are able to compare the whole market of invoice finance lenders for you, in a free-of-cost, confidential service. All it takes is a 15-minute phone to get to know you and your company, and we can then set out to put you in contact with the most suitable lender.