Invoice factoring is a simple form of short-term financing that works well for small and growing businesses. Almost all businesses sell goods and products on credit, but since small enterprises have limited resources, they often deal with issues related to working capital. If you need to improve the cash flow of your business, a good idea is to sell some of your pending debtor invoices to factoring companies. In this post, we will talk about the critical aspects that matter.
Other also known as accounts receivable financing, factoring is ideal for meeting working capital needs. You don’t need to pledge your assets or share in the equity to get a loan. However, the amount of upfront cash you will get through factoring is lesser than the total amount of your invoices. While a considerable part is paid, the remaining will be reimbursed by the factoring service when the debtors pay their invoices. There’s no denying that factoring is easier than straight financing, because you are selling an asset, and therefore, it’s not a loan technically.
Knowing the process
Well, factoring companies are interested in the creditworthiness of your debtors. An invoice that’s due for more than 90 days will not be considered in most cases. If your debtors have a good history of paying invoices on time, you will get the loan easily. Once the invoices have been evaluated, the factoring company will pay a part of the complete amount, which will be typically around 80% of the invoices. The factoring company will pay the remaining 20% after the invoices have been paid. They will deduct a part of that as the financing fee.
Finding a factoring company
FactoringCompanyGuide.com provides invoice factoring solutions to small businesses and you can find a long list of factoring services. Keep in mind that the reputation and experience of the factoring company is important. They must understand the business needs of your company and should explain the entire process of accounts receivable financing. They are also expected to share their prices and charges. In such form of financing, you need to be careful about hidden charges.
Finally, don’t shy away from asking questions before you apply. The whole process of factoring is easy and simple, as long as you check the basic details. The money is transferred within a couple of days, as long as the invoices are checked. Payments are directly deposited in the bank account or paid through wire transfers.