Invoice factoring is the basic process of selling outstanding invoices to a financial business for immediate cash. Smaller enterprises often fall into the trap of having limited working capital and therefore turn to an account receivables factoring agency for assistance. Selling unpaid invoices is a great way to immediately solve cash flow problems without relying on conventional lending sources.
Easily Resolve Cash Deficiencies
Using an invoice acquisition service as a financial substitute doesn’t require putting up company assets as collateral. For a nominal fee, business owners have an attractive tool at their disposal that can help them remain financially solvent. To qualify, the company must have an established database of clients that follow certain factoring parameters. Two of the most important include monthly invoice volume and quality of paying clients. The factor closely assesses each individual situation and then proceeds accordingly.
Factoring Rates and Limitations
Regardless of your business type or industry, chances are you can find a factoring service to work with. Keep in mind that rates and discounts can differ between each agency. Also, there can be a difference in purchasing limitations. For example, some factors will purchase receivables regardless of the total amount while others may have a ceiling. As a general rule the higher the invoice amount is, the less that is charged to the client. Therefore, compare rates and policies between companies carefully to ensure you get the best deal.
Financing without Debt
Contrary to popular belief, a factoring business doesn’t only work with large multi-national companies. Anyone from sole proprietors to small business owners that want to immediately improve cash flow can add a steady lending alternative to their arsenal. Many entrepreneurs seek capital for expansion to a higher level without the bureaucracy and red tape often involved with traditional financing. With a conventional loan the borrower is taking on new debt and paying the interest that comes with it. When factoring, companies are simply trading an established asset for cash.
Guidelines and Qualifications
As long as there are companies that need immediate revenue, there will be account receivables factoring services competing in the marketplace to assist them. The factoring business closely examines all outstanding invoices from the client to ensure the list meets their guidelines. Background checks are performed to determine risk probabilities. The factor is primarily interested in the credit worthiness of each account, as this affects their ability to collect successfully. Clients are then paid for the receivables minus the percentage or discount rate agreed upon.
