How to qualify for confidential invoice factoring
Choosing to conceal company financing with confidential invoice factoring might be appealing, but is it something you need?
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Invoice financing is taking off, with a growing number of companies enlisting the services of factoring facilities that can turn their invoices into a steady source of income. Low fees and lower risk offer a level of security and reliability that business loans can't compete with.
Invoice factoring is a convenient option for many businesses and there are a few different types available. This guide will take you through confidential invoice factoring.
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What is confidential invoice factoring?
By using confidential invoice factoring you are hiding the process of selling invoices from your customers. They will continue to make payments with the understanding that they are being sent directly to you. This reduces the role of the factoring company, which, without interacting with your customers, only has to receive your invoices and pay you for them.
How does it differ from standard invoice factoring?
There are three important differences that separate disclosed and confidential invoice factoring.
- A change of bank details. Before any invoice factoring can take place, your clients will need to be given the details of an account used by the factoring company to receive the invoice payment in your name. In a disclosed arrangement the financing facility will provide this information while outlining their role in controlling your invoices. Businesses using a confidential service can choose to notify their clients of this change of details without divulging the reason behind it.
- No assignment notice. All disclosed factoring agreements require customers to include a written notice with their invoices, confirming their payment is for the factoring company. In the case of confidential invoice factoring, this is not asked for.
- No customer communication. By agreeing to a confidential service, finance facilities give up the right to contact your clients in order to chase up payments. This can appeal to directors who are concerned that the interference of a third party could damage customer relations.
How can my business qualify?
Before agreeing to a confidential service, a factoring facility will want the guarantee that your clients can be trusted to consistently to pay their invoices within a certain timeframe. A limited number of customers or a history of inconsistent payments is unlikely to persuade a financer to take such a relaxed stance on lending you money.
Your business will also need to have:
- A minimum of two years of successful trading with evidence of growth
- Proof of purchase and delivery paperwork to support invoices
- No tax arrears or overdue payments
Without this, most invoice factoring facilities will be reluctant to offer you confidential invoice factoring. It may still be obtainable but you will likely need to provide security in the form of a second mortgage or a sizeable asset.
Have more questions about confidential invoice financing?
Is confidential invoice factoring more efficient than disclosed invoice factoring?
For established businesses with a sound trading history, confidential invoice financing can be more efficient because there is less involvement from the factoring facility. Smaller businesses, however, miss out on the more proactive approach of a disclosed service, which can involve tracking down late payments.
What are the financial benefits?
Some customers may view the use of an invoice factoring facility as a sign of financial weakness and lack of working revenue. Keeping this information undisclosed can therefore be beneficial. On the other hand, external financing is now extremely common in businesses and may even be encouraged by clients who can pay their invoices with no additional pressure and without increased credit terms.
How do the costs compare to normal invoice factoring?
The fees for secret invoice factoring are very similar. Advance rates are usually around 80% of the total invoice with around 3% charged by the factoring facility in discount fees.
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