Waiting for receiving your payment is the biggest factor of frustration for your business. Companies who operate their business seasonally or who have a shortage of cash flow may suffer from this problem the most. There will always be some clients who will demand a generous term or who will pay you slowly. For that certain period of time your cash gets stuck and you are in a deep problem. To remove this problem invoice factoring companies emerged. With the factoring, you may turn your invoices into your working capital.
What is Invoice Factoring?
If you own a business organization that is related to selling products, you may have to do some credit sale. So, you issue invoices for that credit which are designated to be paid within a 30, 60 or 90 days period. But that’s a hassle for you if you are a small business. In this case, you can sell the invoices to another company who will pay 70% – 90% of the invoice price with upfront cash depending on the negotiation. The rest of the amount will be paid to you after the designated time your invoice gives to your customer. Let’s say that time is 30 days. So, when after 30 days your customer pays them, they will pay you too minus the ‘rebate’ and ‘fees’. This is called invoice factoring. And the companies who offer such facilities are termed as invoice factoring companies.
How does it work?
When a company sells a product to its customer, it issues an invoice. This company then sells the invoice to a factoring company and liquidates the cash. The cash is used as operating expenses, salary expenses, material purchase or inventory purchase. In other words, the company sells its ‘account receivables’ to a factoring company. When the issued date of payment arrives, the customer pays the factoring company and they pay you the rest of the amount. They charge some rebate and fees for that. The seller gets cash immediately after sales, the customer gets a favorable payment term and the factor gets the fees and rebate. It’s a win-win situation for everybody.
What to remember before choosing a factoring company?
The factors you should consider before choosing a company for your invoice factoring are as follows:
- Clarify the factoring rates and fees.
- Clarify about penalties.
- No contracts.
- Fix the percentage of cash you will get in the beginning.
- Deciding on anything else that might come to your way.
Whom to choose?
Keeping everything in mind we can advise you to go with invoicebus[dot]com. From a personal experience and client reviews we can tell you that they are clear as a crystal on terms and percentages. Besides the most important thing is that they operate their business worldwide. You can visit their website and start a free trial before jumping into direct business with them. They also have some exciting offers. All in all, invoicebus[dot]com is the factoring company we would prefer for our business.