There are fewer challenges for small business owners and managers than waiting 30 to 60 days to get paid by their clienteles. Even though large businesses can usually afford it, smaller businesses can’t afford the wait. Actually, waiting to get paid on their invoices can develop cash flow difficulties that affect the owner’s capability to meet payroll or pay the company’s bills. This can be more frustrating if the company has a huge amount of orders that it cannot fulfill because its cash is held up in unpaid invoices.
How can invoice factoring help you?
Accounts receivable factoring is also recognized as invoice factoring; it is a financial tool that permits small business owners to capitalize on the power of their slow paying invoices. It allows you to turn your invoices into fast cash, allowing you to fund your business operations. Although many do not know that invoices from strong credit worthy commercial customers are outstanding collateral, particularly for factoring companies. While most banks won’t take invoices – factoring companies are willing to provide you with financing based on them. This is an ideal financing method for small and mid-size companies, as well as knowledge-based companies.
How does invoice factoring work?
Invoice factoring company’s buy your invoices total as opposed to many banks that will loan you money against hard collateral. The factoring company purchases your invoices and provides you with funds immediately, while they wait to get paid by your clients. Factoring is best defined with an example:
1. If you sell services between two companies, once you provide the services, you invoice them.
2. During this time you also send copies of the invoices to the factoring company. The factoring company will then buy them and provide you with an early payment for them.
3. Next the factoring company waits to get paid by your clients. When paid, any remaining funds are sent to your business.
The invoice factoring method can be done every time you invoice, this provides you with a flexible line of financing that develops with your company.
How much will an invoice factor advance my business?
Factoring transactions are usually done as a two-installment deal. The first installment is called the advance; this is paid to you once as you submit the invoices.
Advances can variety anywhere from 60% on the low end, and up to 90% of the gross value of the invoices. 75% is around the average advance.
The remaining installment is referred as a rebate, which is sent to you once the invoice is paid. Factoring fees are removed from the refund.
The cost of invoice factoring
The cost of a factoring contract is determined by three principles.
The credit worth of your clients.
The amount of time that your invoices take to get paid.
Finally, the monthly factored volume.
Your discount which is actually your cost depends on how you fit the preceding criteria, can be as little as 1.5% or as great as 12% per transaction.
How can I determine if invoice factoring will help me?
Invoice factoring will help you if you have a company that has equitable profit margins or is developing quickly. Mid-size businesses that have 20% or more profit margins or large businesses that have 15% profit margins can typically do well with accounts receivable factoring.
Transfac Capital
If you are looking for a Freight Invoice Factoring Company, Transfac Capital is the leading Factoring company in the US! For more information please call 1.800.316.4212 main office or sales 1.800.458.6056 or visit us Transfac.com to fill out a quick application.