Invoice Factoring And Why Your Business Requires It

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.

A Bird in the Hand is Worth Two in the Bush

factoring invoices, factoring company — Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date.

There is a story behind this famous English idiom which dates back to the 17^th century.

The gist is that a sure thing right now beats a promise of better things in the future.

Accounts receivable financing is like that. It gives you ready cash now and removes the risk that you might not be able to obtain the full amount at some later date. And it’s that uncertainty that can disrupt your company’s strategies.

All bank loans require some form of collateral. In most cases, it’s the item itself for which the money is advanced. So if take out a mortgage so that you can buy a house, then the house itself is the security. If it’s for a car or a boat, then the same principle applies.

The title on the item, that piece of paper that shows that you are the rightful owner, is held by the bank so that if you are unable to repay the load, then can sell that security and get their money back.

Sometimes, banks will loan what they decide is the value of the item, regardless of how much you have paid for it. And in the case of a house, they normally require you to have some skin in it, to the tune of about 20% of the purchase price. In that way, they feel that you are more likely to honor your commitment because if you failed to do so, then you would lose not only the house, but your money as well.

I’ve reminded you of how bank loans work in order to help you understand the benefit of using accounts receivable financing instead. Instead of borrowing against your invoices, you can sell them instead. In other words, it’s a sale, rather than a loan. That means you won’t have to pay it back, ever.

The accounts are sold at a discount. The seller gets ready cash, and the buyer makes a profit on the debts when they are fully paid. It can be a win/win for both parties.

If the debts are old, then the value of the accounts is likely to be less than if they were current. That’s because they tend to be more difficult to collect. Each company will have its own policies for this, and you should check with yours beforehand.

The “bird in hand” is cash today. The “two in the bush” are found in the hope that you might be able to collect the full amount in the future.

Let me ask you something. Is it worth the risk?

Rather than write off the outstanding debt now and receive nothing, wouldn’t you rather get something for it instead? Wouldn’t you prefer to shift that risk onto another firm?

When you’re bills aren’t paid, it’s difficult to concentrate on the really important things. But, if you sell your accounts receivable, that will free up your mind for what matters the most.

Accounts Receivable Financing

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How Invoice Financing Works!

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[youtube http://www.youtube.com/watch?v=TfH_Xm8Kbxk&fs=1&rel=0&feature=player_embedded&hl=en]

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Purchase Order Finance and Accounts Receivable Financing

Have you ever considered Purchase Order Financing or Accounts Receivable Financing , also known as factoring invoices?

In contrast to Purchase Order Financing, Accounts Receivable Financing focuses on advancing a large portion of the invoice immediately after the product is delivered to the customer. Instead of waiting Net 30 to up to net 90 days to get paid, an accounts receivable financing company is able to reduce the wait to virtually net zero by advancing 70-90 percent of the invoice amount. After the full payment has been received from the customer the accounts receivable financing company will transfer the remaining portion of the invoice, minus their cost (typically one to three percent).

Get you Cash Fast! As compared to the drawn out process of traditional financing, both Purchase Order Financing and Accounts Receivable Financing can be obtained in a matter of days, albeit Accounts Receivable financing can be faster than purchase order financing.

Credit Worthiness. Both methods focus on the credit worthiness of your client, not your balance sheet. Traditional lending look to your past history of managing your company’s finances and credit when deciding if a line of credit will be approved. Purchase Order Financing and Accounts Receivable Financing, on the other hand, will look to the future of your company and the creditworthiness of your clients.

These two funding strategies are great for newer companies. Companies without a track record of at least 2-4 years, you may not have much of a shot at getting approved for business credit through a traditional lender. Since purchase order financing and accounts receivable financing companies put more weight on your clients creditworthiness, than on yours, young businesses are able to get the financing they need! Visit NeeBo Capital Today!

Factoring Invoices is the Canadian Alternative Financing Strategy

What is an alternative financing strategy? An increasing number of business owners in Canada are beginning to discover what so many American business owners already know. Factoring invoices as a cash flow fix is becoming an increasingly popular strategy.

Canada’s business owners are recovering from a hit taken in 2010. This has an impact on accounts receivables, customers are slower to collect on their accounts receivables, thus they are later on paying invoices. Prior to the downturn Canadian business owners had stacked up their investments in receivables and inventory. This puts Canadian business owners in a squeeze because their money is tied while their customers are taking longer than the 30 days per term provided. This also puts pressure on management to focus on cash flow management rather than focus on growing their business.

The factors involved in this mess are easy to understand. You have your suppliers, our land lord, and your faithful employees. Each of them expect to get paid each month, and when your funds are overdue receivables they can take up to 30, 60, or even 90 days to collect.

So what is a company to do? Go to the bank and hope to get approved within months, or go for venture capital? Neither Canadian business owners are turning towards factoring invoices. By entering into factoring invoices Canadian companies can establish an immediate cash flow, almost within hours. In the United Stated factoring invoices is referred to as “accounts receivable financing” or “invoice discounting.”

Factoring invoices is rather simple. You can refer to Neebo Capital to see factoring infographics that display factoring visually. As a business owner you deliver your invoices to a factoring firm (Neebo Capital) who delivers you funds the same day for a single invoice or a group of invoices.

Accounts receivable financing is not a loan, you do not give up ownership of you business. In fact you get instant access to money with as little as .59 to 1% charge from the factoring company. The factoring company also collects on your invoices for you, they carry the risk of the receivables for you.

Canadian business owners realize the factoring benefits outweigh the minor costs. Instead of waiting weeks for a bank to give them a decision they are turning to factoring companies to see who will give them the lowest rate.

Within 24 hours you can receive up to 80-90% advance on your invoice face value. The factor company does not charge you a fee until the rest of your invoices are collected on. Don’t waste any time and take advantage of this alternative financial strategy that many Canadian business owners already are. Visit Neebo Capital for a free no obligation financial check up. Don’t consider bankruptcy or giving up ownership of your business without discovering what Canadian business owner already have.

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