define factoring – NeeBo Capital Blogs

An Introduction to Factoring Invoices

By: Chris Lanchech

Factoring invoices is one of the things any business will need to continue operations and growth despite seeing financial instability caused by slow overturns and residual returns. It can be very difficult for your business to progress while you are still waiting for your clients to pay. Wouldn’t it be great if all your clients could pay you immediately? That might seem impossible but with factoring you can make it happen.

What is Factoring?

Factoring, also referred by some as invoice discounting, works much like a regular loan except in this case you are considering your invoice or accounts receivable as the ledger. The factoring company will consider your invoice and upon reaching an agreement will lend you the amount that you will be paid by your clients. Consider the example below:

An IT company was requested by a marketing company to develop a dynamic website and overall the payment was to be for $150,000. The IT company, needing resources to start with, factors the invoice with a factoring company. They lend the IT Company 80% of the accounts receivable (in this case it will be $120,000). They will only give the remaining 20% when the client pays the IT Company. The $150,000 that the IT company receives will then be paid to the factoring company, less the fees that the company will have to pay, such as interest fees and administration fees.

Is It Beneficial to You?

Every small or growing business requires liquid cash if they desire to move forward. A business cannot rely solely on their own minimal funds while working towards their accounts receivable, lest they fall into stale debt.

First of all, one has to consider the fact that factoring invoices yield more immediate cash. Most factoring companies lend up to 80% up-front. Banks will usually only agree to give you 50-60%. This means that you can get more resources to get cash flow back in order.

Secure Your Business’s Finances

You might be wondering about the likelihood that your client turns bad and does not fulfill the agreement and your invoice is left unpaid. In this case most companies have insurance offer that remedies the problem. They will still give you the full amount of the loan and they will be the ones to chase after the client to get the payment owed.

If you are still starting with your business or if you are in need of steady cash flow to finance your company’s expansion then factoring or invoice discounting may be your best solution yet. The process yields higher immediate cash-payback than what banks offer and you can get approved in 3-5 business days.

Processing fees, interest rates, and miscellaneous fees are much lower than what you’d expect and you can even avail of insurance to protect you in case your client defaults on the payment. Getting your cash flow in a steady rate is crucial for your business’ growth and factoring invoices is a much better, faster, and efficient means of achieving this.

We define factoring for manufacturers, suppliers, and other businesses selling on credit.

Nowadays the business environment is changing, cahsflow and capital are not easy to come by for the manufacturing and supply sectors. Business opportunities are becoming more competitive and margins are shrinking. Your clients are also needing more time to payback on their invoices.

As business owners we understand this scenario, and here at Neebo Capital we can help. We can boost your cash flow by providing advances of cash against the value of the businesses outstanding invoices.

Afterward you issue new invoices, we send you up to 90% of the exact value of the invoice within just twenty-four hours. And as soon as we receive payment from your customer, the remaining capital are paid to you, minus a small services fee.

For manufactures, suppliers and other businesses looking to sell off of credit this process of factoring gives you easy access to a continuous source of cash linked to your sales. So as your business grows we deliver the funds…fast! This cash on hand will allow you to take advantage of discounts your suppliers may offer for paying early, the capital will allow you to increase growth projects, marketing, ect.

In addition to the cash that we provide, neebo capital can also help you save valuable management time. This is time spent better focusing on expanding your business.

We provide a accounts receivable managing program where we follow up and collect outstanding invoice repayments from your customers on your behalf, to ensure that you have more time to focus on generating new business. We prepare and send out statements, telephone all of your customers, collect payments for you and maintain professional and detailed accounts of your transactions. We give you twenty four hours on-line accessibility to your records, including scanned images of the checks that we receive, conversations, ect.

We have defined factoring, and our management service we offer as an optional. If you are interested in our factoring service, or any other need for capital then please visit neebocapital.com and discover how you can get funds to grow your business.

Understanding Profit Margins & Factoring

There is a point to think about whenever your business is looking to factor invoices. You need to think about your profit margins.Whenever you have to pay interest on capital you raise from outside sources, like Neebo Capital factoring company, you have to first decide whether you can pay for the added expense.

It’s a good idea in any event to know precisely the amount of profit you gain from every single sale you are making. If it is a product or service driven business it ought to be fairly easy to do.

To do this: deduct the cost of the product in advance of sale from the sales price minus all the added costs; shipping and delivery, taxes, commission rates, business overhead etc. It is also a good idea to work with your accountants to acquire a fixed percentage of the sale that represents your “overhead costs” such as rent, utilities, office managing.

With a service oriented business it is somewhat different, but when you treat an per hour wage like a product you can get an idea of the expenses involved with your jobs. An additional benefit of dealing with this exercise is determining precisely what it is you do that is the most lucrative.

Clearly you want to focus on activities or goods that have by far the most profit potential for your business. When factoring your invoices with Neebo Capital, the discount rate for supplying cashflow to help you increase your business is going to be an added cost towards the net profit we are discussing here.

For example if your business is a high volume- low margin venture, factoring may not be suitable financing. So knowing what your profit margins are will permit you to make the right decision when thinking about using factoring invoices with Neebo Capital as a tool for growth.