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4 reasons why this business uses Factoring instead of an overdraft

Posted: 16th August 2016

While Factoring was historically perceived as a ‘last resort’ option, it is now seen by many as a practical, effective method of releasing working capital, with many accountant professionals recommending this type of funding to their clients.

There are many UK business owners who are still unsure about what Factoring is and whether it is right for their business and more suitable than an overdraft.

“As our business grew we began offering credit terms to our customers and our £20,000 bank overdraft wasn’t sufficient for our cash flow needs.

We approached our bank for an increase but they refused to give us the limit we needed as we had under 3 years trading history.

We’d heard about Factoring and were reticent about the process but decided to meet with.

Calverton Finance to see what would be involved. I have to say we’ve never looked back! Factoring has given us everything we needed to continue to grow and much more. We are able to access £100k from our sales ledger and as we generate more turnover this increases so we always have the working capital we need.

The credit control service included with Factoring has been excellent and a massive weight off my shoulders. Our Calverton credit controller is a part of our team and has been a great help in collecting payments in from our customers.

If we had continued to use our limited overdraft instead of Factoring, we would not have doubled our turnover last year. To any business looking at factoring I would say it’s a great way to fund your business.” Mr P. L Bevan, K Services & Solutions

What are the benefits of factoring compared to a bank overdraft? Here we help to explain:

4 benefits of Factoring

1)  Factoring is geared to sales, which means funding availability increases as your turnover increases, whereas an overdraft remains static, with any increase requiring a renegotiation of terms and an additional renewal fee.
Also, with Factoring you needn’t worry about how you will repay the balance you have borrowed, as this is repaid once your customers settle their invoices. The Factoring Company effectively is advancing money that is already owed to you.

2) Factoring through an independent lender such as Calverton Finance, is separate from your banking arrangements. Your bank may have refused an overdraft or to increase an existing overdraft limit however, factoring is available to you as a cost-effective alternative – with no reliance upon your bank.

3) A Factoring facility will provide you with full management of your sales ledger including a professional credit control service.

You will have a dedicated credit controller working for you to collect payments from your customers, which gives you peace of mind to concentrate on activities that generate revenue, rather than chasing for payments, or the expense of employing someone full-time.

4) Overdrafts may be withdrawn at short notice. When a Factoring arrangement is put in place this is often for a set period and can be as little as a few months up to a year. This provides you with comfort that you have funding in place and don’t need to worry about your working capital being withdrawn. Overdraft is repayable ‘on demand’ and the bank can withdraw or reduce a limit immediately and at any time.

When you consider the benefits that Factoring offers compared to an overdraft, it isn’t surprising that so many business owners are deciding to use this as their main source of funding.

If you are already using Factoring, you may wish to consider an alternative, perhaps more competitive, facility. Transferring is easier than you think as we manage the whole process for you to ensure that any transfer is smooth and seamless.

If you’re not currently using Factoring for your business and are interested in learning more, please contact our friendly team today here or call us on 01908 268888.