A negative financial climate will undoubtedly see business finance as a rare commodity among cash-strapped businesses in Scotland. Outside of recession, credit for businesses is generally free-flowing and businesses can shop around to get the best deal. However, even firms that have sold financial statements sometimes have difficulties with securing finance, and a number of lending institutions can likewise experience problems with capitalisation and be unable to lend much. Due to this, a number of companies in need of business finance are forced to seek an alternative or go without. One such alternative that has seen an increase in popularity among Scottish businesses is Edinburgh invoice factoring.
Edinburgh Invoice factoring exists as a way of resolving problems with cash flow that occur when clients are given 30 to 60 days in which to pay their invoice. It is not uncommon for commercial clients to extend their 30 day term, but many SMEs are unable to afford to wait past that point. They have certain expenses that they need to keep on top of, such as rent, payroll and supplier payments. Edinburgh invoice factoring enables outstanding days on an invoice to be reduced significantly, which puts the company back on a firm financial footing.
The process is a fairly simple one. When the product or service has been delivered, the invoice is sold to a third party known as a factoring company. A factoring company will look at the company that is expected to pay the invoice, examining its business credit. If it is happy with what it has seen, it will purchase the invoice at a discount. The discount is only small and gives the business it has bought the invoice from access to cash-flow. This can then be used to fund daily expenses and develop the company.
There are two payments involved in most transactions with Edinburgh invoice factoring. The first is known as the advance, which is approximately 80 per cent of the total invoice. The second payment is the remaining 20 per cent, minus fees, and is rebated when the invoice has been fully paid.
The main benefit of invoice factoring is that it is easy to acquire. Most SMEs are able to get it, as long as they have good clients and assets with encumbrances. This makes this form of financing a great solution for businesses that are not in a financial position to wait between 30 and 60 days to be paid.