Cash flow shortages can happen to almost any business, but invoice factoring can provide a quick, easy solution. Invoice factoring involves the selling of your invoice factoring consultant account receivables or accounts to secure immediate working capital.
Invoice factoring lets you discover cash that’s tied up in your not paid accounts. Obtaining cash this way can be an easy, effective tool to fix small or medium size businesses financial challenges. Invoice factoring might be right for your business if you lack adequate working capital to maintain your operations or expand to another location level. Perhaps you’ve considered other options like loans, lines of credit or credit cards. If a company doesn’t have enough financial stability or business credit, invoice factoring could be the perfect alternative to bank financing.
Here’s why: Approval for invoice factoring doesn’t hinge on your company’s credit history. Instead, it depends on the creditworthiness of your customers. Companies that purchase accounts will evaluate your web visitors based on their stability and payment track record. The invoice factoring company’s main concern is determining how likely your web visitors will pay and how quickly.
Apart from your web visitors meeting qualifications, your accounts must also pass certain criteria. There can’t be any existing primary liens on your accounts, meaning no other company should have a claim on the payments once they arrive. This ensures that the company purchasing your accounts has a clear directly to collect the funds in your place.
Just about any company that generates commercial accounts can take advantage of invoice factoring. But is invoice factoring right for your business? It could be if your business is struggling to make ends meet because of long payment menstrual cycles, you’re wasting time collecting down payments from slow paying clients, you’re unable to take advantage of online business offerings due to lack of funds, or your business isn’t financially strong enough to obtain traditional bank financing.
Advantages of Invoice Factoring Besides providing fast access to capital, invoice factoring offers a number of other important advantages. It gives you unlimited access to funds without adding liability to your balance published. Because invoice factoring isn’t a loan, there’s no debt or monthly premiums involved. Plus, invoice factoring is a flexible arrangement because it doesn’t require any long-term contracts.
Additionally, invoice factoring makes it easier for you to offer credit terms to customers. This can help you increase your sales without negatively impacting on your hard earned money flow. Invoice factoring also can help you take advantage of the early payment discounts many vendors offer on bills within ten days. Ultimately, invoice factoring can help build business credit. The amount of money flow you create from invoice factoring can make it possible to pay your vendors on time and set up a stronger credit rating. And this can assist you with securing credit from other vendors and financial institutions.
Another significant benefit of invoice factoring is the professional debt collection service provided by the factoring company. The factoring company is equipped to handle debt collections professionally and efficiently, leaving your staff to focus on core activities such as creating more sales. In addition, this will get rid of your costs associated with processing accounts and handling collections costs.
How Invoice Factoring Works Invoice factoring is a transaction in which you sell outstanding accounts for immediate cash, instead of waiting the typical 30 days for the accounts to be paid. The user gets an up-front, lump-sum payment for your accounts that’s slightly less than face value. The advance payment which can be provided within as little as at any hour is typically 70 to 90 percent of the total invoice value.
After the purchasing company receives full payment for the invoice, you’ll get the remaining value minus a ‘factoring’ fee. This fee is based on a number of factors, together with your customer’s credit worthiness, the average terms, and the invoice number and size. However, generally, the invoice factoring fee is up to five percent of the invoice value.
To give you an idea about how invoice factoring transactions work, here are some of the main steps in the process:
Step 1: You fill out an application to an invoice factoring company.
Step two: After you’re approved for invoice factoring with the company, you can start forwarding your customers’ accounts to the company for cash advances. (Your customer will be given a bill from the factoring company, that is responsible for all payments processing activities related to the invoice. )
3: Assuming everything checks out, you’ll be advanced up to 90 percent of the value of the purchased accounts.
Step 4: Your web visitors most likely submit payments to the company that bought their invoice. This company, in turn, will forward you the rest of the, not paid percentage of the invoice taking out the invoice factoring fee, of course.
When choosing an invoice factoring partner, it’s important to select the right kind of company to work with you and your customers. Here are some important considerations to be aware of:
o What type of reputation and track record does the company have? When you turn over your web visitors, make sure they’re in good hands and that the factoring company is capable of providing the funding you need.
o How much is the invoice factoring company charging? Evaluate all the components of the price, including any fees, the interest rate and the percentage of your invoice that is held back in ‘reserve’.
o What are you going to get for your money? Determine the company’s accounting, credit reporting and other capabilities.
o How will the invoice factoring company treat your clients? The company will have to communicate with your web visitors after they take over your accounts. You want to be sure the interaction that comes together is positive. If it isn’t, it may reflect negatively on your own relationship using these customers.