Tag: accounts receivable factoring

Invoice Factoring And Why Your Business Requires It

Invoice Factoring
Free up cashflow!
Invoice factoring is a brilliant solution to traditional bank loans whereby you can free up working capital and raise cash for your business immediately.

Whatever business you may be a part of or running, having a good cash flow is always imperative. Anyone who is running a B2B operation will know that late payment of invoicing is a persistent and ever present problem and can build stress within the company, even when it is doing really well.

Invoice factoring is a form of accounts receivable financing which will help you get paid on time every time and will enable you to perform daily operations and payments normally. While invoice factoring as a  does have its pros and cons, the cons for the most part apply only if the process is used on a business model which does not need this type of financing.

What is Invoice Factoring?

Invoice factoring is a type of financial transaction where you, as a business owner will sell your accounts receivable to a third party, called a factor at 80% to 95% of their face value. The third party then goes around collecting payments for the invoices and forwards any balances that may be left less charges to you.

Here is a step by step illustration of how the process works:

Step 1: You contact a factoring company and sell your overdue invoices to them at a pre-determined rate which is typically 80% to 95% of the invoice’s value.

Step 2: The factoring company will provide you said value, usually within 24 hours thereby freeing up capital for your company.

Step 3:  The factoring company then collects the payment due on those invoices it just got from you.

Step 4: Your customers pay the factoring company instead of you and any residual balance which is left is immediately remitted to you.

This type of accounts receivable financing will help you free up locked capital quicker and also take care of a huge headache by allowing you to pursue your business goals rather than running after customers for payment.

What Types of Businesses is Invoice Factoring Good For?

 Invoice factoring is typically applicable when businesses are extending their customers a line of credit, or if they are a B2B operation selling to other companies. Also businesses which need cash now, rather than cash later can use invoice factoring to get the money they need in order to run their operations normally. By using Invoice factoring you will be able to plan out your cash flow better, pay bills and take care of payroll. Finally when you use invoice factoring, the factor will then take care of your sales ledger and do the running after for you.

Invoice factoring is a brilliant solution to traditional bank loans whereby you can free up working capital and raise cash for your business immediately. With this type of accounts receivable financing, your cash is in the bank, the funding is immediate and is primarily driven by your costumer’s demand for your products. Finally, another advantage of invoice factoring is that the service fee is only charged against advances that are not fulfilled by your customers. So every time a customer pays, the debt is automatically repaid.

 

 

Choosing the Right Company to Handle Accounts Receivables Factoring

By: Chris Lanchech
 
cash-in-hand

Accounts receivables factoring, or invoice discounting as it is known in some places, is necessary for any new or growing business. It provides the needed capital for initiating production and it is a much safer and cheaper option than taking out a business loan. However it can be quite difficult to choose the proper factoring company since many of them offer different terms and fees. Here’s a list of things you will want to look into before striking a deal with any factoring business.

 

Read Customer Reviews

This is the first thing any business should do before they turn to a company for accounts receivable factoring. There are many websites that have unbiased reviews concerning factoring companies and you can even find video reviews on Youtube. When looking through reviews, the most critical aspect is to go through the factoring company’s credibility and customer service. Do they charge hidden fees? Was the process as quick and easy as advertised? How smooth was the communication between the company and their clients? Many reviewers are quite candid and blunt in their reviews so you’ll immediately get a good idea whether or not that specific factoring business can be relied on or not.

 

Check Their Experience in Your Industry

Most factoring businesses are also knowledgeable in some industries while others are flexible to handle several more. This is important to take note of because some industries have different financial structures. The way they pay clients and the way they handle open invoices could be different. If the factoring company you are considering does not have experience in your industry you might want to look elsewhere.

 

Shop Around for Quotes

Just because you found one factoring company that offers a good deal it doesn’t mean you can call it a day. Shop around and compare quotes. Sometimes they will lure you in with low fees but then get back at you with penalty fees, especially if your client goes bad and does not fulfill the open invoice.

 

Check Their Collection Procedures

This is very crucial because it can determine how well your relationship with other clients will evolve. Some factoring companies do not interact with your customers and allow you to collect the amount and then close the invoice. Others will openly interact with your customers and close the invoice on their own. Some businesses relate with their customers better if their debt collection and financial assessments with factoring companies is discrete. It is entirely up to you to decide which collection procedure is best and it is wise to know beforehand which type your factoring company of choice utilizes.

 

With these tips in mind you’ll be able to find the very best factoring company to handle all your invoice discounting needs. Yes, there are fraudulent companies out there and there are some that require more than others, but these elements will help you sort out the good from the bad. Accounts receivable factoring is inevitable for many businesses and doing business with a good factoring company is key to your success.

Factoring Business vs Bank Loans

By: Chris Lanchech

The factoring business has been around for centuries, starting all the way back to the Renaissance era in Europe. To this date it is one of the key essentials that any growing business should utilize if they intend on staying afloat and to eventually expand. So what is invoice factoring and why is it essential for a business’s survival? In order to help you understand and get a firm grasp of how this process can indeed help your business, here is a quick dive at the definition and individual aspects of factoring business

Is It a Loan?

First and foremost, factoring invoices are not a type of loan. A loan is where an individual or business borrows money and then pay it back with interest. In factoring, the company is simply buying your assets; in this case, they purchased the amount listed in your invoice.

 

For example, a client gave you a project, which takes 6 months to complete and your current invoice indicates that the fee they’ll pay you at the end of the term is roughly $100,000. Unfortunately, since your business is not paid at the onset, you could possibly face financial setbacks until such time the project is completed. To solve this problem, you may approach a factoring company.

 

How Does It Work?

The factoring company will assess your invoice and this can usually take three to five days until they approve and deposit the amount to your bank account. What happens is that the company will buy your assets (invoices). Usually the company will pay you 80% first and then the remaining 20% when the client pays the full amount.

 

This means that you have roughly $80,000 right at the very beginning. This is money that you can use for raw materials and funding the project to its completion. By the end of the term you won’t be getting the full $100,000; the factoring company will charge you certain fees (usually no more than 2%) in return.

 

Collecting the Invoice

Now there are two options. You can either notify your client about the factoring agreement and then when the job is complete they will directly pay the factoring company instead of handing the payment to you. Most companies do not choose this route. Instead, they usually just let the client pay them and then hand the money over to the factoring company. This makes their agreement private and kept only between the two parties involved.

 

Bank Loans

A factoring company purchases your accounts receivable and will then collect the actual payment from your client later on. A loan, on the other hand, is where you borrow money from a lender with the intention to pay them back, usually with interest. The problem is that a loan can carry high interest rates, high penalties, and the process can take too long. A factoring business is like getting paid cash and it is really necessary in order for a business to be able to fund its daily operational costs.

Should You Choose Factoring Companies Over Banks?

By: Chris Lanchech

Factoring companies purchase accounts receivable from various businesses and will enable you to get immediate cash on-end to serve as resource for your day to day operations. Of course each time they lend you an amount it will depend mostly on the quality of your assets. However there have been accounts of people getting duped by fraudulent factoring companies and there have been factoring institutions cheated by fraudulent borrowers as well. With banks offering business loans and other credit options, why would factoring invoices be a better option?


Reason #1: Bigger Cash Out
The problem with getting financial assistance from a bank is that they normally give you only up to 60% upon payout. Some banks and credit institutions do purchase invoices and assets but they won’t pay you enough to get your cash flow back on track. With a factoring company, however, you can get as much as 75-80% right on day one. That is pretty much the same as saying you got paid for the job right on the same day you started working on it. It becomes even better if you factor multiple invoices at the same time.

Reason #2: Lower Costs
Credit unions and banks can charge a pretty hefty fee. You’ll see charges that can go all the way up from 4% to a whopping 12%. They can literally rob you of your profits. A factoring company will generally charge you less than 2%. This means you get to use your money and they still get to earn a little profit along the way. One of the best things about factoring invoices with dedicated companies is that they sometimes offer factor insurance. This means you won’t have to pay them the money in case your client defaults on his payment. Instead, they’ll give you the rest of the loan and will then chase after your client to get the money back.

Reason #3: Faster Processing
Your business may not be able to function until you get some funds to start with and the problem with banks is that the application and assessment procedures could last for weeks. The good thing about a factoring company is that the entire procedure only takes a few days. Usually it only takes three to five days and you’ll have the amount deposited to you. To make the process even faster, factoring invoices usually only requires you to fill out two pages of information. This is quite the opposite of applying for a business loan or factoring invoices with a credit union because that would require piles of paperwork and information.

The Verdict: Factoring Companies versus Banks and Credit Unions
Banks and credit unions can be an option especially if your business has good standing with them but remember what your company’s main focus is: profit. Profit is derived from steady cash flow and lower overhead costs. You can only attain these by having stable resources, less costs, and less time wasted. With all of these taken into consideration, your company can benefit more if you choose factoring companies instead of banks.

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.

Credit Insurance Policies on Receivables

So you have a business and you sell to clients on credit terms. Maybe you should consider credit insurance policies on your receivables. Why?
Credit Insurance Policies on Receivables
The simple answer is to reduce risk, and strengthen your businesses financially in order to establish a stronger bankline in the future.

However the deeper answer has to do with your business and its potential loss. The saddest stories in the factoring world come from businesses who lose their largest accounts overnight.

These accounts can be large fortune 500 companies with sound financials.However one bad press release or shock to the economy can have a trickle effect and bring their business to a halt. A perfect example of one of these unforeseen chain reactions, was the filing of bankruptcy of one of the largest food processing companies in the industry.

All it took was one massive press release about the “pink slime” found in processed hamburger meat and The King of Prussia,  a PA-based food processor was devastated. Prior to the release the company processed about 500 million pounds of beef annually!

Now imagine if you are a suppler for this company with over $50,000 or $100,000+ in outstanding A/R. Prior to the pink slime press release you may have not been worried. The King of Prussia may have been one of your largest and secure accounts. However you now can see how quickly things can change in today business environment.

why should you buy credit insurance?

Had suppliers had credit insurance policies for their large customer “the king of Prussia” they would have recovered $0.80 to $0.90 cents for every dollar they were owed.

Sometimes – and this is the reason for credit insurance – there are unforeseen factors that influence the performance and survival of your customers.  Whether those are the court of public opinion, mismanagement, or a bad acquisition, companies go bankrupt, leaving you and your company paddling up shits creek.

Visit Neebo Capital for Credit Insurance Policies on Receivables

Accounts Receivable Financing

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