Late payments are currently the single most strenuous challenge affecting UK businesses. The long gap between invoicing and finally getting paid can be a growth killer, causing delays in business operations and posing a risk to your basic overhead.
Disclosed factoring provides a powerful solution, but understanding it can be daunting. If you are wondering what disclosed factoring is, then look no further! This blog provides a comprehensive overview of disclosed factoring, explaining its intricacies and the implications for your business.
What Is Invoice Factoring?
Let me start with a little bit of the basics before we dive into disclosed factoring. Invoice factoring is a type of financing in which the company sells its unpaid sales invoices or accounts receivable to a third-party commercial finance company known as a factor.
In other words, you are turning your sales ledger into cash straight away. Instead of waiting 30 days, 60 days, or even 90 days for payment, you receive cash for the invoice’s value upfront from the factor. The factor then becomes responsible for collecting the payment from your customer.
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The Factoring Process
The process of factoring consists of the following steps:
- Invoice Your Customer: You sell goods or services to your customer and issue an invoice.
- Submit To The Factor: Once you have generated the invoice, you then submit a copy of that to your factoring company.
- Get an Advance: The factoring company checks the invoice and gives you an advance of up to 90% of the invoice value.
- Collection: The invoice factoring provider handles the whole process of getting the payment from your customer.
- Get The Balance: Once your customer has paid the factoring company in full, the balance will be released to you minus their fees.
What Is Disclosed Factoring?
Now onto what you all are looking for: what is disclosed factoring? The answer lies in the name.
Disclosed factoring is a type of financing solution where your customers are made aware, in writing, that you are working with a factor. The factoring company will step in to let the debtor know that the debt has been assigned and give them new payment instructions so payments come directly into their account.
How Does Disclosed Factoring Work?
The process of disclosed factoring is the same as the invoice factoring process, with one key difference:
- You bill your client for services provided
- You send the invoice to the disclosed factoring company you selected.
- The provider then provides you with funds, usually within 24 to 48 hours.
- Your factor reaches out to your customer to inform them of the assignment. They will issue a ‘Notice of Assignment’ and provide the client new bank information to pay in. It’s an open, intentional, and transparent process.
Disclosed vs Confidential Factoring: What Is The Difference?
The problem with many businesses is that they are uncertain whether disclosed or confidential factoring is ideal for them. The following table provides a clear breakdown:
| Feature | Disclosed Factoring | Confidential Factoring |
|---|---|---|
|
Customer Notification |
The financial arrangement known to the customers |
The financial arrangements remain confidential |
|
Credit Control And Collection |
They take care of getting payments from customers on your behalf |
You are still responsible for collecting payments from your customers |
|
Best For |
SMEs that want to outsource their sales and credit control |
Established companies with strong in-house finance teams |
|
Control |
Reduced control of collections process and client relationship |
You are in control of your customer relationships |
Advantages Of Disclosed Factoring
Apart from instant cash advances, there are several other benefits of disclosed factoring:
Competitive Rates
As the factor is involved in controlling your sales ledger and undertaking that administrative responsibility for chasing payments, this can result in the fees associated with disclosed factoring, which is more competitive than other types of financing options.
Factoring Facility Limits
Your factoring facility also expands with your sales. Factors may be more flexible and provide larger facilities because they are actively controlling the risk and collection process.
Outsourced Credit Control
The credit control team of disclosed factoring professionals handles all payment collection for you, enabling your staff to focus on core business activities like sales and production.
Disadvantages Of Disclosed Factoring
Powerful as it is, this financing model doesn’t work perfectly for every business.
Longer Lead Time
The due diligence required for a disclosed factoring arrangement can be more extensive than that for other types of loans, as the factor must evaluate both your business’s and your customers’ creditworthiness.
Impacts Customers' Relationships
Some business owners are concerned that bringing in an independent entity will affect their current client relationships. The professionalism of the factor is vital: you don’t want to ruin your relationship with a client by hiring an overly aggressive factor collection company.
Bad Perception Of Business Financial Health
Explaining to customers that you are employing a factor will make them think that your business is having money troubles. Such an arrangement will put a negative perception of your business’s financial health in the market.
How To Find The Perfect Disclosed Factoring Provider?
It is important to find the perfect partner. You are not just choosing a source of funds but rather a company that will interact with your customers. Look for a provider:
- That has a favourable reputation and satisfied clients.
- Who does not impose any hidden fees and offers competitive rates.
- Who handles credit control and customer service in a professional and courteous manner.
- That works in your target market.
Finding the ideal disclosed factoring provider among so many providers is a very hectic task; companies like ComparedBusiness UK help you find the perfect disclosed factoring provider for your business needs.
Find The Ideal Disclosed Factoring Provider With ComparedBusiness UK Today!
Searching the market for a factoring provider that complies with your business needs can be a very daunting and time-consuming task. This is where ComparedBusiness UK comes in.
We do all the hard work for you and match you with a disclosed factoring company that aligns with your business demands, budget and goals. Get in touch with us today to discover the best providers.
FAQs
We define ‘disclosed’ in factoring as informing your customers about the financial arrangements made by the factoring company. Your customers will be aware that the factor is now in charge of administering and receiving payments.
No, they are different. ‘Disclosed’ refers to customer notification, whereas ‘recourse’ refers to the company that takes the loss when a client fails to pay.
Disclosed factoring is especially common among business-to-business (B2B) companies in the UK with long invoice payment terms. Common clients include wholesale, manufacturing, and distribution organisations.
