Invoice factoring is a form of financing that allows businesses to convert their pending invoices into immediate cash by selling them to a factoring company. Before you consider this option, here are some of things you need to know.
Also known as accounts receivable financing, invoice factoring is best suited for B2B businesses. You need to find a factoring company that’s reliable and has a good name in the market. They will buy your invoices and pay an immediate amount into your business account, often with a week. Typically, bills that are due in 90 days are considered for invoice factoring. The factoring company will pay the amount of the invoices in two parts. First, they will pay the major chunk, which can be as much as 95% of the invoice total, and the second one will be paid when the bills are paid by debtors. There is no interest involved, but the factoring company will charge a few for their services, which will be deducted from the second payment.
Why go for invoice factoring?
With invoice factoring, you don’t need to bother about working capital needs. The factoring service is not interested in your creditworthiness like a bank, but there are concerned about the reliability of your debtors. If you have done business with known companies, getting a loan is never a problem. Secondly, invoice factoring doesn’t involve any of your business assets and doesn’t impact the balance sheet. It is more like selling what is already yours. The processing time is limited, and approvals are often granted within a day. If you have cash in hand, you can pay your creditors on time, which can improve your goodwill and market standing.
What to note?
It is important to choose the right factoring company. Interstate Capital specializes invoice factoring and is one of the best services around. You need to check the terms and conditions of the lending before taking a call, and it is also wise to keep the factoring fee in mind. By paying that fee, you are lowering your profit margins, and therefore, this might not be a great choice for businesses with lower margins. You should be careful of the debt collection process of the factoring service, because you wouldn’t want to harm your relationships with the reliable debtors.
Check online now to find more details on invoice factoring, and do compare your options.