National Society

Business loans provide companies with the capital they need to make essential purchases and investments in their business. Common options are standard loans, overdrafts, credit cards and invoice finance. Standard loans and invoice finance are probably the most closely related. While typical business loans require borrowing against the value of your business for a minimal risk investment, invoice finance allows you to borrow against outstanding debt.

How Factoring Works

Invoice factoring allows you to borrow a percentage of your outstanding, unpaid invoices. The factor retains a percentage of the invoice value as their fee. You receive the borrowed funds within a few days to immediately place back into your business. The factor collects the debt for you. It’s both a loan and debt collection service.

How Invoice Discounting Works

Invoice discounting is similar to standard business loans. You borrow a set percentage against your unpaid invoices. You pay interest on the borrowed amount until you collect the debt yourself. This option is mainly for medium to large businesses with a higher annual turnover.

For any company, whether large or small, or profit or charity based, having public liability insurance is a vital requirement.  Such financial protection can make the difference between bankrupty and staying afloat should a claim be filed that results in large amounts of compensation and legal costs. For any business requiring protection against financial ruin in the modern day, having such an insurance policy is paramount.

Public liability insurance’s main mandate is to financially protect firms should a member of the public be hurt, or even killed, through the actions, or inaction of employees. This could be by direct intervention of a company employee or through negligence, such as leaving wires in a public place that a third party then trips over, causing an injury.

With modern day accountability seeing a significant rise, more people than ever seek to get compensation if they have an accident where someone else is to blame.  For those companies that want to ensure that they can continue operating should the worst happen, public liability insurance should be the number one priority.

Non-recourse factoring is a type of invoice factoring that might be chosen by a business.  The alternative type of invoice factoring it could choose is recourse factoring.

Non-recourse factoring means the factoring company takes on the bad debt of a business that is using its services.  It will accept specified risks in relation to non-payment of invoices by a debtor.  However, it will not insure against debts that remain unpaid because of a genuine dispute between the business and the customer.  In these cases, the business must take steps to resolve the matter and if agreement cannot be reached then any amounts that have been advanced will have to be returned to the factor.

Because the factoring company accepts liability for unpaid debts, the costs associated with non-recourse factoring are higher than for recourse factoring.  Although money that has been advanced against a bad debt does not have to be repaid, interest does remain payable on the outstanding amount until such time as payment is made.  All rights to pursue the customer, including the right of legal action, are taken over by the factoring company.

As a responsible landlord, ensuring that you have adequate insurance cover for your property will give you some peace of mind when operating in the rental market.  Landlord insurance is an essential element that both the landlord, and in some respects the tenant, can rely upon in the event that something goes badly wrong during a tenancy.

Before entering into renting out a property, landlords should take the time to understand and review any existing insurance policies and commitments they have with regard to their potential liabilities. It makes very good financial and legal sense to set some clear ground rules about exactly who is responsible for what. Most importantly on the part of the tenant, what is expected of them when they are custodians of their landlord’s property throughout the duration of the lease.  It is also advisable in some cases to get professional advice on this point, as some standard home insurance policies may not provide adequate cover, or might not provide comprehensive or unrestricted cover in some rental property circumstances.

Potential landlords should ensure that they keep their existing insurers aware of any intention to rent out their property, as any subsequent claim could be invalidated if insurers have not been told of the situation.  It is really a very good idea to take out a specific and comprehensive landlord insurance policy, to protect you in the event that a problem arises during the course of a tenancy.

Tenants are responsible for their own possessions when kept inside a rented property. There are specialist products in existence regarding landlords, tenants and rented property, which aside from buildings and contents includes possible legal expenses, rental guarantees and emergency repairs cover.

There are various types of pet insurance policies that can be taken out, just as with human life insurance policies.  There are two types of policy: a lifespan policy or a limited time policy. The limited time plan will cover the animal for a pre-fixed amount of time, typically a year, and it has to be renewed for the following year to cover treatment if the pet requires it.  The lifespan policy covers an animal for the rest of its life as long as the policy is renewed. This will cover the costs of treatments up to a certain financial limit that the policy will provide (until it is renewed).
    
The type of policy depends on the owner and pet’s specific needs.  Owners must first check to make sure that their pet will be covered by a plan, as some exotic animals and smaller animals, such as rabbits or guinea pigs, may not be insurable.  Cats and dogs are the most common animals that insurance companies will definitely cover.  The policy will vary depending on the animal. Lifelong cover may set a limit on the age the animal will live to.  Cats generally live slightly longer than dogs so the number of years they will be covered for is more than for dogs.

What is covered depends on the policy.  Some plans will include the costs of treating a pet if it becomes ill abroad, some will cover the actual cost of your pet if it dies unexpectedly, and some will even cover the cost of any holidays cancelled if your pet needs emergency treatment preventing you from going on that holiday.  The latter may only be covered if your family travels regularly and you are therefore unable to leave the animal at home with a sitter or at a kennel. Some plans may only cover emergency medical treatments and not routine events such as vaccinations and health checks.

Illnesses or incidents that are usually not covered by insurance policies may include anything that occurred before the insurance plan was taken out, pregnancy or birth, and, as before, any routine events such as nail clipping or flea removal. This will have to be thoroughly researched by enquiring with Insurance companies or searching to internet to make sure your plan will cover everything that you require.

Worried about taking out a business loan? Concerned that meeting repayment schedules on a mortgage could prove difficult? When cash flow is a problem but borrowing is not appropriate, try invoice factoring for an alternative that has many advantages.

The chief advantage of invoice factoring is that it offers prompt access to the cash that is already due to the business. When an invoice has been raised, often it is necessary to wait for up to 90-days for payment – sometimes even longer. This can result in late payment of bills to suppliers and the consequent loss of advantageous discounts for early settlement. Factoring offers an opportunity to receive up to 90 per cent payment straight away.

Credit Management

There are some options as to how relationships with creditors are handled when businesses try invoice factoring. On the one hand, the factor can take on responsibility for ensuring that cash due is collected, relieving the business of this task. Alternatively, if the business prefers to handle this differently, then there is a method by which the business continues to manage the collection of the cash due: ‘Client Handles Own Collections’, and is often known simply as CHOCS.

Factoring brokers can give assistance and advice to businesses that are considering factoring as a way of easing cash flow. This is useful to companies that are new to the process, as the arrangement between the lender and the business selling its invoices is crucial to the success of the factoring system. For example, some businesses may prefer their customers not to know they are using a factoring service, and may require this to be kept confidential – brokers will know which lenders can accommodate this.

The two types of invoice factoring, ‘recourse’ factoring and ‘non-recourse’ factoring operate according to similar principles, apart from the fact that the level of risk to both factor and business client is different in each case.

Recourse Factoring

Recourse factoring is usually the cheapest option for a business that is selling-on its invoices. This is because, in this case, the business retains the risk of the debtor defaulting. If this happens then the onus is on the business to either replace the unpaid invoice with another invoice to an alternative creditworthy debtor, or to pay the full value of the bad debt. Fees and interest may still be due, and overall the factor bears a lower level of risk in recourse factoring.

Non-recourse Factoring

In non-recourse factoring, the positions are reversed in terms of risk-taking. In this case, the factor generally accepts certain specified risks in terms of whether or not the debtor defaults. In addition, the factor takes on the rights and responsibilities associated with pursuing the debt, including the right to take legal action. The business that sold the invoice will not have to cover its cost in the event that the invoice is not paid, however there may be interest charges on any advance already made.

One cautionary note about the non-recourse option: this type of invoice factoring does not provide any level of protection if an unpaid debt results from a genuine dispute. Understandably, then, non-recourse factoring is the more expensive option of the two.

‘Small Business Finance for Dummies’ is a book by Faith Glasgow, part of the Dummies series from John Wiley and Sons. The book deals with all aspects of business finance for small companies, from bookkeeping to payroll.

The ‘For Dummies’ Series

The ‘For Dummies’ series of books was started in 1991, with a guide to the DOS computer operating system. Since then, it has expanded to over 16,000 titles on subjects as diverse as musical instruments and parenting. The subtitle for all the books is ‘A reference for the rest of us’, indicating its philosophy of user friendliness and some humour.

The Book

The book is divided into six sections. The first is an introduction to the subject, the second covers basic accounting, the third financial reporting, the fourth financial management, the fifth payroll and the sixth tax. It is designed to be dipped into, rather than being read from cover to cover and the sections can be read in any order. It is ideal for anyone who is just starting out in business, as it walks the reader through all aspects of business finance in simple, jargon-free language.

Landlords and tenants need to know their rights and have correct insurance policies when renting and letting properties.  A common mistake is to not realise that tenants should cover their own possessions under their own insurance policy, whereas landlords should take out comprehensive landlord insurance that covers building and contents, including fixtures and fittings.  Landlord insurance should also not be sold by a letting agent unless they are authorised to do so by the FSA (Financial Services Authority).  An unregulated policy may be invalid, meaning landlords leave themselves financially vulnerable in the event of theft, fire or other emergency. 

Buildings should always be covered by landlord insurance policies.  This would include cover for damage from possible events such as fire and smoke, burst pipes and oil/fuel leakage, storm and flood and malicious damage to property, as well as theft and subsidence.  A good policy for landlords to adopt is one that includes the sub-clause of malicious damage to property by tenants, although not all insurers cover this.  Loss of rent can usually be covered to some extent but not for prolonged periods of time; 20 per cent is a usual figure. 

Landlords are advised to obtain contents and liability cover for their properties; this would protect against a claim for a faulty item such as gas cooker, for example.  If as a landlord you have a fully furnished property, or one with items worth more than £5,000, it is crucial to have full contents insurance.  Tenants must be made aware to get contents cover as a separate policy for themselves; otherwise they will be liable for any damage they have caused to the property.

There is good news about the costs of invoice factoring in that, generally, they are fairly reasonable. The provision of invoice finance is a competitive business and there is no shortage of suppliers, so it makes sense to carefully consider and appraise what is on offer before taking a final decision.

It is also worth remembering, though, that cost should not be the sole consideration and that quality of service is paramount, particularly where business finance and business loans are concerned. For this reason businesses should evaluate all aspects of working with particular brokers or lenders, and identify the advantages of working with those who may not be at the least expensive end of the spectrum.

From the outset, be aware that factoring can be a complex and relatively long-term arrangement. This means that it could have a significant impact on the development and management of a business. Taking professional advice about invoice factoring is always advisable, whether this is from a legal or financial expert, or perhaps from a specialist company that has expertise in this field and can advise accordingly.

Costs Breakdown

Standard costs occur as discount charges or interest, and also as service fees. Extra services, if requested, may incur additional fees.

Discount charges mimic bank interest charges: they are tied to base rate. Commonly they register at between 1.5 to 3 per cent over base rate. Discount charges are calculated daily and generally applied on a monthly basis. Sometimes these fees are more advantageous than equivalent bank overdraft rates.

Fees are charged also for administration and credit management and frequently are linked to turnover, number of customers and volume of invoices presented. Typically, these fees are in the range 0.75 per cent to 2.5 per cent of turnover.