Invoice factoring companies can be very effective in helping your business grow faster. This is especially true for businesses that receive a lot of receivables every month. In this article, we will discuss what are invoice factoring companies, and what makes them a valuable funding resource. Without further ado, let’s start:
What is invoice factoring?
Invoice factoring is shortened to just factoring or debt factoring. Invoice factoring is a financial solution that makes it possible for businesses to market their receivables (invoices) to factoring companies.
The invoice factoring company purchases the unpaid invoices for just a portion of their overall price and your business will immediately get the funds for the invoice minus the fees imposed by the invoice factoring company. Afterward, the invoice company will be the one to enforce collection of your invoice. The popularity of invoice factoring is increasing over the years, and it has become an alternative to traditional ways of funding a business.
In this regard, invoice factoring companies are the entities that provide invoice factoring services. You need to consult and sign a deal with an invoice factoring company if you want to take advantage of invoice factoring.
2. How a factoring company provides payment for your receivables
The majority of factoring companies pay for your invoice two times. First, they will pay for the majority of the receivables of your invoices, which will take care of your finances. This initial payment varies on your deal with the invoice factoring company. Afterward, you will receive the remainder of the invoices once your customers have paid their invoices. This second payment is reduced, with the invoice factoring company taking their factoring fee. Depending on your contract, however, the factoring fee can be imposed on the bulk payment or both.
3. The steps involved with invoice factoring
- Your company provides the invoices or copies of your invoices to the invoice factoring company.
- The invoice factoring company checks for the eligibility of the invoices, and decide on the risk they are taking. Their risk assessment will affect their bulk payment offer, factoring fee, and their quote.
- The invoice factoring company makes their offer.
- Once the deal is signed, the invoice factoring company will pay you in bulk, and they will take over the collection of your invoices.
- After all of the invoices are collected, the invoice factoring company will give it to you, while deducting their factoring fees and other costs.
Reasons why would you want an invoice factoring company
One of the best reason why you would want to avail the services of an invoice factoring company is that you’ll gain access to the funds that otherwise remain uncollected. Depending on your customers and the due date of your invoices, your invoices can take a long time to be collected. By working with an invoice factoring company, you’ll gain instant access to a percentage of your receivables immediately, allowing you to have funds for other areas of your business for a small fee.