Every time a sales invoice is raised, a copy must be sent to the Factor as well as to the customer.  (Some Factors will also raise the sales invoices, which would cut out this step).

The sales invoice is marked as being factored, and the customer is required to pay the Factor direct.

The business can withdraw or “draw down” up to 85% of the sales invoice.  (Some Factors will withhold the VAT element until the end of the VAT quarter, eliminated the problem of not having enough funds to pay the VAT to HMRC)

The Factor will maintain the sales ledger (posting sales invoices and payments to each customer account) and also carry out credit control (chasing customers for payment)

When the customer pays, the balance of that sales invoice may be also be withdrawn.

At the end of each month, the Factor sends out statements for the sales ledger, the overall account position/availability of funds – including Factoring charges and discount fees.

The availability of funds or “Client Availability” or sometimes confusingly called the “Client Balance” is  the amount of money that can be withdrawn or “drawn down” from the Factor)

If a sales invoice is not paid within a certain timeframe (typically within 3 months), in the case of a recourse agreement, that sales invoice becomes “disapproved” and the Factor will take the money back, normally by reducing the availability of funds.

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