arrangement that allows you to receive up to 80 per cent of the cash due from your customers more quickly than they would normally pay. The factoring company in effect buys your trade debts, and can also provide a debtor accounting and administration service. You will, of course, have to pay for factoring services. Having the cash before your customers pay will cost you a little more than normal overdraft rates. The factoring service will cost between 0.5 and 3.5 per cent of the turnover, depending on volume of work, the number of debtors, average invoice amount and other related factors. You can get up to 80 per cent of the value of your invoice in advance, with the remainder paid when your customer settles up, less the various charges just mentioned.
If you sell direct to the public, sell complex and expensive capital equipment, or expect progress payments on long-term projects, then factoring is not for you. If you are expanding more rapidly than other sources of finance will allow, this may be a useful service that is worth exploring.
Invoice discounting is a variation on the same theme where you are responsible for collecting the money from debtors; this is not a service available to new or very small businesses. You can find an invoice discounter or factor through The Asset Based Finance Association ( www.abfa.org.uk/public/membersList.asp ), the association representing the UKâs 41 factoring and invoice discounting businesses.
Equity
Businesses operating as a limited company or limited partnership have a potentially valuable opportunity to raise relatively risk-free money. It is risk-free to the business but risky, sometimes extremely so, to anyone investing. Essentially this type of capital, known collectively as equity, consists of the issued share capital and reserves of various kinds. It represents the amount of money that shareholders have invested directly into the company by buying shares, together with retained profits that belong to shareholders but which the company uses as additional capital. As with debt, equity comes in a number of different forms with differing rights and privileges.
Ordinary shares form the bulk of the shares issued by most companies and are the shares that carry the ordinary risks associated with being in business. All the profits of the business, including past retained profits, belong to the ordinary shareholders once any preference share dividends have been deducted. Ordinary shares have no fixed rate of dividend; indeed over half the companies listed on US stock markets pay no or virtually no dividend. These include high-growth companies such as Google and Microsoft, which argue that by retaining and reinvesting all their profits they can create better value for shareholders than by distributing dividends. A company does not have to issue all its share capital at once. The total amount it is authorized to issue must be shown somewhere in the accounts, but only the issued share capital is counted in the balance sheet. Although shares can be partly paid, this is a rare occurrence.
Preference shares get their name for two reasons. First, they receive their fixed rate of dividend before ordinary shareholders. Second, in the event of a winding up of the company, any funds remaining go to repay preference share capital before any ordinary share capital. In a forced liquidation this may be of little comfort, as shareholders of any type come last in the queue after all other claims from creditors have been met.
Class A and Class B shares are cases where categories of shareholder are singled out for more or less favourable treatment. For example, class A shares are often given up to five votes per share, while class B gets one. In extreme cases class B shareholders can get no votes at all. Companies will often try to disguise the disadvantages associated with owning shares with fewer voting rights by naming those shares. One of the most famous examples was their use by the Savoy
If you sell direct to the public, sell complex and expensive capital equipment, or expect progress payments on long-term projects, then factoring is not for you. If you are expanding more rapidly than other sources of finance will allow, this may be a useful service that is worth exploring.
Invoice discounting is a variation on the same theme where you are responsible for collecting the money from debtors; this is not a service available to new or very small businesses. You can find an invoice discounter or factor through The Asset Based Finance Association ( www.abfa.org.uk/public/membersList.asp ), the association representing the UKâs 41 factoring and invoice discounting businesses.
Equity
Businesses operating as a limited company or limited partnership have a potentially valuable opportunity to raise relatively risk-free money. It is risk-free to the business but risky, sometimes extremely so, to anyone investing. Essentially this type of capital, known collectively as equity, consists of the issued share capital and reserves of various kinds. It represents the amount of money that shareholders have invested directly into the company by buying shares, together with retained profits that belong to shareholders but which the company uses as additional capital. As with debt, equity comes in a number of different forms with differing rights and privileges.
Ordinary shares form the bulk of the shares issued by most companies and are the shares that carry the ordinary risks associated with being in business. All the profits of the business, including past retained profits, belong to the ordinary shareholders once any preference share dividends have been deducted. Ordinary shares have no fixed rate of dividend; indeed over half the companies listed on US stock markets pay no or virtually no dividend. These include high-growth companies such as Google and Microsoft, which argue that by retaining and reinvesting all their profits they can create better value for shareholders than by distributing dividends. A company does not have to issue all its share capital at once. The total amount it is authorized to issue must be shown somewhere in the accounts, but only the issued share capital is counted in the balance sheet. Although shares can be partly paid, this is a rare occurrence.
Preference shares get their name for two reasons. First, they receive their fixed rate of dividend before ordinary shareholders. Second, in the event of a winding up of the company, any funds remaining go to repay preference share capital before any ordinary share capital. In a forced liquidation this may be of little comfort, as shareholders of any type come last in the queue after all other claims from creditors have been met.
Class A and Class B shares are cases where categories of shareholder are singled out for more or less favourable treatment. For example, class A shares are often given up to five votes per share, while class B gets one. In extreme cases class B shareholders can get no votes at all. Companies will often try to disguise the disadvantages associated with owning shares with fewer voting rights by naming those shares. One of the most famous examples was their use by the Savoy
Similar Books
The Evil That Men Do: FBI Profiler Roy Hazelwood's Journey Into the Minds of Sexual Predators
Stephen G. Michaud, Roy Hazelwood
