One can obtain quick cash by selling its invoices or accounts to an invoice factoring company. Invoice factoring is effective in eliminating the waiting period of 30-60 days which customers usually take to pay invoice. This gives boost to a business owner with immediate working capital. With the help of invoice factoring you can easily and quickly form a business financing group.
Invoice factoring works in a simple manner. Every business group issues an invoice while selling its goods or services to the client. This invoice can be sold to an accounts receivable factoring company most commonly known as the ‘factor’ who would hand some cash amount to the business owner against the invoice. The advance which the invoice factoring company offers is usually 70-90% of the gross value of the invoice.
Meanwhile, as the invoice is cleared by the customer and as soon as the factoring company receives the money, they pay the remaining funds after deducting a negligible financing or interest fee.
Therefore, the debtor doesn’t have to go through any tedious process or hassles for drawing back his money from the client. Thus, invoice factoring is a wonderful means of business financing. It is not the matter of concern for the debtor regarding when the invoice would be cleared by the customers. Since businesses can obtain instant funding by factoring their invoices, maximum within 2 to 4 days, they don’t have to worry about the lack of working capital and its impact on their business operations.
By availing the benefits of invoice factoring system, adequate working capital is provided to the business house which helps them to increase their sales and business operations. This in turn gives a great amount of support to their finances. Thus, accounts receivable factoring plays a major role in the growth and success of a business.
Invoice factoring prevents a business from the problems and inconveniences of obtaining finance through conventional means like bank loans or obtaining loans from private money lenders. However, it cannot be completely considered as an alternative for banks but only a helping hand for business owners and organizations. The only prerequisite for factoring invoices is that a business must have a good reputation as a business holder in the market. Since the factoring company’s only collateral means are the invoices that they purchase from their clients, therefore, it becomes essential for them to know that they are dealing with reliable clients only. Other than this, one does not need any assets or collaterals for obtaining cash from factoring companies.
Factoring companies provide invoice factoring to both small and medium sized businesses from varied industry types, such as trucking companies, warehousing companies, construction companies, landscaping companies, staffing firms etc.
Some of the ideal benefits of invoice factoring are that through this process outstanding payments of selling invoices can be settled. An invoice factoring company purchases your invoices for less than the amount due on the invoice and advances the payment to your company. Your customer then owes the amount of the invoice to the invoice factoring company. The immediate payment of your invoices ensures that your everyday expenses can be met and new orders can be filled without further delay.
Thus, invoice factoring can be viewed as an ideal solution for all your cash problems.