Invoice factoring

Invoice factoring is a process which is designed to increase a business’s cash flow without the need for the traditional bank loan. But what is factoring?



In essence an invoice factoring company will purchase invoices from a business at a discounted price once goods have been sold or services have been completed. The entity that received the goods or the services then pays the factoring company for those goods or services (at the full price of the invoice). With factoring, unlike a bank loan, the business does not have to wait 60 to 90 days to realise the cash from the debtor. But how does invoice factoring actually work?

Factoring

Most invoice factoring is now done online. There are many invoice factoring companies offering an online invoice factoring service whereby funds may be paid into a business’s factoring account within 48 hours of the invoice being rendered. The percentage of the invoice that is paid into the business’s account depends upon the factoring company and the services the factoring company is to provide, which differs depending on the business’s needs. Some invoice factoring agreements provide for the invoice factoring company to be responsible for the collection of late invoices and others provide for the business owner to maintain all contact with the client. Costs of invoice factoring also vary depending on who takes on the risk of non-payment by the debtor. Where the invoice factoring company takes on the risk of non-payment, the costs will be higher.

Invoice Factoring

Invoice factoring is not appropriate for all businesses but it can be useful for a business that is new and/or growing rapidly and for which invoice factoring means it has the cash flow to match its growth. Invoice factoring involves more costs than a traditional bank loan however there are advantages to invoice factoring in some circumstances. For starters invoice factoring is not a loan; it is in fact the selling of assets. This means that there is no need for any real estate to be put up for security. For information go to decision finance’s website. Further, because invoice factoring is not a loan, invoice factoring companies are not interested in the credit worthiness of the business; only that of its debtors. Invoice factoring services often include credit checking of the businesses debtors.

Factoring receivables

Companies in the business of factoring receivables point out that the benefits of accounts receivable factoring include the time in which agreements can be reached; whilst a bank loan may take weeks, receivable factoring companies claim that receivable factoring agreements may be reached within days.