If your business is going to continue to grow, you've got to get the finance right. There are big differences between providers, the products they offer and the service they provide even if they look alike. Chances are you've got a lot on your plate. Do you have time to check out the whole market and read through all the small print? Don't forget, any decision you make now could have a big impact on your business for years to come.

Some companies promise big advances but ultimately deliver much less. We know who they are. Most companies offer an agreed percentage (up to 90% of the sales ledger balance once disallowed debts have been deducted). But providers have their own rules when it comes to recourse periods, debtor concentrations and funding limits. We tell you what is realistic.

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•   Projected sales
•   Number of active debtors
•   Credit quality of customers
•   Projected number of invoices and credit notes to be processed
•   Nature of the business
•   Financial performance of the client
  

The fee will be expressed as a percentage of turnover. On top of that there are interest charges that are linked to the funding requirement. However, some providers slap on extra charges that are hidden in the small print. Don't get stung.

To try and eliminate fraud, Directors are required to warrant that the invoices purchased by the factor are genuine and collectable. Providers argue that personal guarantees are in place to 'concentrate the minds' of Directors responsible for the business. In reality, if a client should fail, a personal guarantee will encourage directors to assist in collecting debts and reducing the shortfall. There has also been a move to limit the value of personal guarantees. However, these issues are negotiable and part of the overall deal.

It varies, but 12 months is the norm with a notice period of three or six months thereafter. However, these are negotiable as part of the overall deal.

The criteria are quite simple; providers will only do business with clients that offer goods and/or services to other businesses or government bodies on trade credit terms. Companies that sell direct to consumers are ruled out. Financiers tend to avoid businesses which invoice stage payments. However, there are exceptions.

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No. Some providers will work with businesses which have an annual turnover of just £50,000 plus (including VAT), while others are looking for businesses with sales of more than £1m.

No. Some providers will consider a business with a creditors' voluntary arrangement once they have assessed the viability of the company, the debts, debtors and the strength of the management team.

Most people are surprised to learn that the invoice finance industry will soon be providing more working capital to Britain's businesses than bank overdrafts. The market has become far more sophisticated and competitive. For many businesses seeking finance, it is now the preferred option.

Some providers offer a credit control facility that is next to useless. Debtors take forever to pay so that the cost of factoring is higher than expected. A more professional provider may appear more expensive but could easily work out cheaper in the long term.

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It should be straightforward enough - a service charge plus interest to be paid based on the use of funds. That's exactly what you'll pay to some companies. Meanwhile, some providers make charges for "additional" administration, hefty charges if you exceed the credit limit and after 90 days a re-factoring charge.

It's a fact that good service requires a certain staff ratio. No one can get round that. Yet some companies will maintain that by using technology it is possible to keep staff ratio at an unrealistically low level. As a result, 'credit control' is a stream of standard letters that can result in slower payments. There is no attempt to build a relationship with the client's customers and this can do your business more harm than good.

Even though most clients are responsible for their customer's debts (known as recourse) some providers get really picky about which debtors they're prepared to fund. Not only that, but they can also be inflexible about credit limits. Matters are often worse when it comes to non-recourse factoring (where the factor takes the credit risk) where credit limits can be set at low levels. This can create more problems than it solves.

And some providers really get their money's worth. They create an annual agreement with either a specific anniversary date or three months' notice. Few realise that after the anniversary date the provider is entitled to another year's minimum fee. So, unless you give notice at exactly the right time, you're tied for another 12 months or will have to pay a large early termination fee to exit earlier.

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The amount of money you receive is geared to the invoices raised against your customer base. If a key customer represents a large proportion of your debtors but has a concentration limit imposed by the financier, you could find that the overall amount of money you receive is substantially reduced, unless steps are taken early in the negotiation of your facility.

If you require funds owing within the 24 hour specified time allowance, some financiers will charge an administration fee, a CHAPS charge and a penalty of up to £150 as they are only committed to transfer the money within 24 hours.

Most of us are aware of the controversy about bank clearing days. Well some financiers will credit the payment received from the customer the day after receipt i.e. within 24 hours, but then take between 5-10 days to clear the balance for interest purposes.

Most factoring companies offer a web-based or 'online' service facility, but the scope and use of the service varies enormously from fully transparent transactions to pretty basic websites that really don't help you manage your finances very well. So, if this is important to you we can advise who's got what and tell you just how good it really is for you.

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