Are you a business owner looking for an easy and viable way to finance your business? If you’ve tried to apply for a bank business loan, you may have discovered that the process can be timely and complicated.
Accounts Receivables Factoring – Financing Business More Easily
Invoice factoring is open to all sorts of businesses, even start up businesses with no time in business. Factoring is based on the strength of your clients business, not yours. What happens is that you do a job for them, and give your client net 30 terms (differs by industry). Now you have to wait 30 days to get paid….or you can contact a factoring company who will buy the invoice from you . Instead of having your profit or income frozen or tied up in those unpaid invoices, the factoring company pays you up front for those invoice and you get immediate access to the cash. This can help you have complete incoming orders and other projects.
How Invoice Factoring Works
Factors give you a percentage of the value of the invoice you factor. Some will advance you up to 95% of their value! While others are more conservative and will advance around 60%. The average cash advance provided by most factoring companies is 80% of the total amount of the invoices submitted. As the business owner, you are not obligated to factor all your incoming accounts receivables. You can factor as little or as much as you like. Factoring companies will of course only want to buy the invoices of your more established credit worthy customers. So don’t expect to get rid of your problem payers by sending them to a factoring company!
Choosing The Right Invoice Factoring Company
When looking at a factoring company don’t always just look at how much they will advance up front. While that is one of the biggest reasons why a company chooses a factoring company it shouldn’t be the only. Also look into:
- The ease of submitting your invoices. Some companies have automated the process so it can all be done conveniently online. While some require you mail or fax the invoices in.
- You also want to look at fees charged. Some factoring companies will charge a set up fee while others won’t.
- Look at how quickly they can turn around your loan request. Usually they can get your business set up in their system within a few hours. What takes time is the researching of your clients. 2 – 7 days is the average time period. If your clients are big, well known firms, you can expect this process to go faster
- Find out if they have industry restrictions or geographical restrictions. There are factoring companies that specialize in certain industries. If you own a long haul trucking business, you won’t want to approach a factoring company that main interest is in staffing companies. Also if you work with companies outside of the US, you will need to find a company that will finance those sort of invoices. Unfortunately most factors only factor US company invoices. So you may want to consider another way of financing your business if most of your clients are outside of the USA.
What If Your Client Doesn’t Pay The Factoring Company
When you sign up with a factoring company. Find out what their policy is if the client doesn’t pay. Some of them will charge the non-collectible invoice back to you. While some of them will not. Since all of them do research on your client BEFORE sending you the money, there are some companies that will eat the cost of the non-collectible invoices. But keep in mind, these factoring companies tend to be more conservative with which invoices they buy. Since they are paying you for the invoice in advance of collecting on it. They want only the most stable of companies.
The remaining balance from the invoices would be given after your customers have completed their repayment with your factoring company. With this in mind, you should factor invoices only from your most reliable customers. This way, the risk of payment defaults and loss can be avoided.
Industries That Use Invoice Factoring
While factoring is open to all industries. Some industries use it more than others. Examples of those industries are transportation, printing, manufacturing, janitorial, staffing, wholesalers, oil and gas. Any industry that traditionally gives its clients a set amount of time to pay for the goods or services they sell can use factoring.
Accounts receivables factoring is a method of business funding that any business owner can use to his advantage. Explore the market and compare factoring companies in order to find the one that offers the best invoice factoring services.
Irish Taylor is a business loan consultant with Startup Business Loans and has been providing consumers and business owners with startup business financing since 1992. For years she has helped people with credit and loan problems especially pertaining to business start up, SBA loans and Unsecured loans.