What Is Invoice Factoring And Invoice Discounting

What Is Invoice Factoring And Invoice Discounting



What is​ Invoice Factoring And Invoice Discounting?
The Romans were the first civilization to​ sell promissory notes at​ a​ discount, beginning the industry of​ factoring .​
America was built largely on the possibilities of​ factoring, when colonial businesses were factored by Europeans willing to​ invest cash in​ exchange for the promise of​ large returns, and government bonds also use the same principles applied by businesses when they engage in​ invoice factoring.
Invoice factoring is, at​ its simplest, the sale of​ the right to​ collect cash owed on your outstanding invoices .​
Most businesses engage in​ invoice factoring when they need cash up front quickly, or​ when they have customers that are slow to​ pay and don't have the resources to​ build an​ accounts collections department .​
Though some companies are large and established enough to​ get accounts receivable financing through a​ regular bank, it​ can be handy to​ have access to​ invoice factoring companies as​ well.
Most businesses use invoice factoring to​ get fast cash .​
In the intense and fast paced business environment of​ today, ready cash can be invaluable .​
With the sale of​ your invoice futures, you can get the cash today you need to​ capture customers that will move your business forward.
Invoice factoring is​ not a​ loan; rather, it's an​ outright sale of​ an​ asset .​
Another way of​ looking at​ it​ is​ as​ a​ cash advance: you give up a​ certain portion of​ the money you expect to​ receive in​ the future in​ exchange for ready cash today .​
While some businesses purchase invoices outright, others give you a​ down payment toward the invoice, paying you the balance less their fee when they receive payment from the customer .​
One of​ the best things about invoice factoring is​ that your credit has no bearing on whether you are approved; instead, your customer's credit qualifies the invoice for factoring.
Many different industries take advantage of​ invoice factoring, including:
* Transportation
* Manufacturers
* Distributors
* Wholesalers
* Staffing and consulting firms
* Telecommunications companies
* Service providers
Because ready cash is​ so important in​ their business, industries that are heavily vested in​ human services and need to​ be able to​ meet payroll are among the best able to​ leverage invoice factoring .​
However, any business that generates at​ least ten thousand dollars in​ accounts receivable should be able to​ use invoice factoring, provided they've acquired creditworthy customers.
Other situations that might make invoice factoring a​ wise choice for you include:
* a​ young company with creditworthy customers, but not sufficient credit history for your own business to​ be considered creditworthy by banks
* a​ company with the necessity of​ taking advantage of​ new, time-limited sales and profit opportunities, but inadequate cash flow currently to​ do so
* Companies with income, credit, or​ tax problems
* Companies that have filed for bankruptcy, but that stand to​ turn a​ profit
* Companies that are growing too rapidly for ready capital to​ keep up with business needs
* Companies poised to​ grow very soon but do not want to​ incur debt
* Companies that are growing rapidly, but do not have good enough credit to​ take out bank loans.
* Start-up companies with no capital base currently
* Companies with seasonal sales patterns or​ uneven sales patterns




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