WHAT IS INVOICE FACTORING SERVICES?
Invoice factoring services are selling your invoices (accounts receivables) to a third party or a factoring company to reduce debt and improve cash flow. Businesses that use invoice factoring see an immediate boost in cash flow. Independent finance providers or banks provide invoice factoring. Invoice factoring for small business helps the company to grow and develop.
Invoice factoring services provider is a solution to cash flow problems. It provides short term capital by assigning and selling invoices to a factoring company or factor. The factoring companies usually give 70-90% of the invoice value in advance. Invoice factoring is an excellent option for businesses and companies that need access to cash quickly but are not able to secure a traditional bank loan.
HOW DOES INVOICE FACTORING WORK?
The basic steps of how invoice factoring works are as follows:
- Firstly, you submit your invoice details to the factor or the factoring company to check if you are eligible for the factoring services. The factoring company will then check your credit scores and client information and reach an agreement.
- The factor will advance you the money, once there is an agreement.
- The factor will then collect the invoice with your customers.
- The factor or the factoring company will pay you the remaining balance of your money, once the invoice has been collected. They would also deduct a portion from the balance as their fee.
PROS AND CONS TO INVOICE FACTORING
We have prepared some fantastic advantages and some disadvantages that an invoice factoring company gives to you.
Pros:
- Invoice factoring services can give you access to cash quickly.
- It is an ongoing cash-flow process; it doesn’t have to be a one-time financing option.
- The factoring companies look at the payment history of your customers, giving you a better chance of approval.
- There is no kind of collateral required. These are some of the advantages of invoice factoring.
Cons:
- The fees associated with invoice factoring can be limited.
- You will be responsible to pay the unpaid invoices if you are under the recourse invoice factoring agreement. This is one of the major disadvantages of invoice factoring.
- The factoring companies might not take on your invoices if your clients have a habit of not paying you on time.https://fund.do/invoice-factoring-pros-cons/
- Factoring companies have access to the invoices of your company.
Also Read: Invoice Factoring Pros and Cons
CHOOSING THE RIGHT INVOICE FACTORING COMPANY
You should carefully select the right factoring company for your business. The terms can be different from one company to another. You need to see if you require an industry-specific factoring company. Some of these industries include medical, transportation and construction factoring. You also need to know what types of factoring services they offer.
You need to make sure if the factoring company offers recourse or non-recourse funding? Every factoring company has different programs and terms and the fee structure is also different. You need a factoring company that meets your business requirements.
Choose a flexible factoring company. Choose a factoring company that has been in business for a long time and has the proper experience. Factoring companies with strong customer service is also important.
Choosing the right factoring partner can be tricky and complicated. But you need to be sure which factoring company will be helpful for your business. So, it becomes important to check and know everything about the best factoring company you select.