Sales Ledger Finance
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A Sales Ledger is a record a of a companys' daily sales. It records the money a company has received for goods or services as well as the amount of money that the company is still owed for such goods or services at the end of each month. It enables a company to monitor and chase slow payers.
Sales Ledger Finance, otherwise known as Factoring is an extremely flexible form of finance, which grows in line with the growth of the business. Sales invoices are forwarded to the Sales Ledger Finance company who will immediately advance up to 85% to 90% of the invoice value. The balance of funding, less charges, is received once the customer pays. So the business benefits from "accelerating" the cash flow by up to 85% to 90% of the debtor book. In addition, should it be required, the Sales Ledger Finance company will manage the sales ledger, issue statements, chase the debts, and collect payments from customers of the business.
If bad debt protection is required then this can be arranged as part of a package. This would not only cover for bad debts but it would also allow for greater funding flexibility.
Choosing the right facility and the right factor for your business can be a daunting and time consuming task. You should look to use a company with considerable experience in the Sales Ledger Finance and the invoice finance industry, they should be able to find the right facilities for your business.
There are factoring companies that offer confidential factoring but you may find it hard to find these companies. Confidential factoring is a full factoring facility, the credit control being operated by a credit controller who is employed by the factor at the factor's premises. Sales ledger management is undertaken in the client's name, with customers being totally unaware of any third party involvement. All correspondence is generated on the client's stationery.
Funds are advanced against sales invoices in the same manner as a standard factoring facility with the remainder available when the customer pays.
Factoring can be used to generate and accelerate cash flow in a number of situations:
- Start Up/Phoenix
- Management Buy Out
- CVA's
- Business Expansion
- Corporate Acquisitions
- Share purchasing
The costs of Factoring.
There are two main costs associated with a factoring facility:
1 - Service charge:
There is usually a minimum annual amount that your business will have to pay for a factoring facility. Expressed as a percentage of turnover (generally between 0.5% and 3%), the actual charge will be determined by the workload involved i.e. the number of customers, the number of invoices raised, etc. As every client is different, each deal will be priced accordingly.
2 - Discount charge:
This is the cost of borrowing money, it is expressed as a percentage over bank base rate. The rate charged usually varies between 1.5% and 3.5% over the base rate.
Payroll
Some factoring companies will be able to offer a comprehensive in-house payroll service. This service would include:
- Calculation of PAYE and NI deductions
- Calculation of net wages
- Payment of employees on designated dates.
- Provision of payslips
- Provision of year end submissions e.g. P60s
By allowing the factoring company to take care of such tasks, you will be able to use your managements time to work on inproving and growing the business. Management time can be better spent on winning new contracts. A payroll service is extremely flexible, the factoring company will do as much or as little as you require, tailoring the service to meet the needs of your business.
