Invoice Factoring What Is It And What Are The Benefits

Invoice Factoring – What is​ It and​ What Are The Benefits?
Are you​ a​ business owner who wants to​ increase monthly cash flow, working capitol, and​ improve your​ credit rating? Then invoice factoring could be right for​ you​ .​
Invoice factoring is​ the process by which businesses sell their invoices to​ a​ third party, called a​ factor .​
The factor buys the invoices for​ about 3 to​ 5 percent less than the invoice is​ actually worth .​
if​ your​ business produces any type of​ invoice, then your​ business can take advantage of​ invoice factoring .​
Once the factor purchases the invoice, then the factor owns it, and​ collects the debt from your​ client .​
As the business owner, you​ get to​ decide which invoices to​ factor, based on​ your​ customers’ credit and​ payment history with your​ business .​
Factoring your​ invoices means your​ cash flow does not suffer while you​ wait for​ your​ customers to​ pay .​
The factor buys the customers’ debt, improving your​ working capitol and​ the credit rating of​ your​ business .​
It works like this: you​ send an​ invoice to​ your​ customer .​
Then you​ inform your​ invoice factoring company that you​ have sent the invoice, and​ in​ what amount .​
Usually, that can be done by e-mail, so it’s quick and​ easy .​
The second step is​ the factor confirms the invoice with your​ client .​
Usually, this​ is​ done in​ such a​ way that the customer or​ client does not know that you​ have sold their invoice to​ a​ third party .​
The factor will identify itself as​ a​ billing department or​ company, rather than an​ invoice factor, and​ will simply call or​ send a​ letter to​ confirm the invoice .​
Some invoice factoring companies are willing to​ keep the factoring completely invisible to​ your​ customers .​
and​ after you​ develop a​ history and​ good relationship with the factor, they will usually stop confirming every single invoice .​
Once the factor has confirmed the invoice, they pay your​ business a​ percentage of​ the total amount of​ the invoice, usually around 70 to​ 85 percent .​
this​ is​ called the advance rate, and​ it​ is​ one of​ the primary points to​ look at​ when selecting a​ factoring company .​
When the factor collects the invoice from your​ customer, you​ will get the rest of​ the money you​ are owed .​
Factoring benefits businesses that have poor credit history, no credit history, or​ limited hard assets .​
Factoring also helps businesses when they are just starting out, because it​ can often take time to​ build up steady cash flow .​
Additionally, invoice factoring allows you​ to​ increase working capitol without taking liens against your​ other collateral, so there is​ little risk to​ you​ .​
As a​ business owner you​ know how frustrating it​ is​ when waiting for​ your​ customers to​ pay .​
Even if​ your​ invoices are not past due at​ all, it​ can still take weeks to​ collect the funds you​ need to​ put back into your​ business immediately .​
Invoice factoring can help your​ business grow and​ reduce your​ own stress level.

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