Businesses Invoice Factoring – NeeBo Capital Blogs

Business invoice factoring is a way that firms can obtain much-needed cash, and they do so by selling their receivables, also known as invoices, at a discount to a third party, also known as a factoring.

Factoring is technically a financial transaction, and a business will sell of its accounts receivables at a discount of what they would normally make off of them, in order to collect cash from a third-party immediately. It’s not a loan. They’re completely selling off their invoices. It might be up to the factor to collect the invoice, or it could be the duty of the seller to make sure that the invoices are collected on.

There are three parties involved in a factoring arrangement. There is the person who sells the receivable, or the company who sells the receivable, there is the debtor who is also the seller, and there is the factor. The receivable is basically a financial asset, and it’s connected to the liability of the debtor to pay the money that’s owed to the seller, and it’s often for goods that are sold, or work that is performed. In some industries, factoring is a normal part of how the industry works, like in apparel or textiles. It’s just the way that business has always been done. In other industries, it’s sometimes just done by firms on an individual basis in order to get some much-desired short-term cash.

The sale of the invoices will basically transfer the ownership of the invoices to the factor, and it will indicate that the factor has all the rights that are connected to the invoices. Basically, the factor will get the receive the money paid by the debtor for the invoice cost, and in a certain kind of factoring that’s called nonrecourse factoring, he will have to take on the loss if the debtor doesn’t pay the invoice.

Invoice factoring is also a great way that a business can get a quick cash advance on any of its clients that aren’t paying very quickly. Someone else may want to take on that obligation, and a business may want to get rid of that obligation. If they can just collect a certain amount on their unpaid invoices, then it’s better than nothing. It’s the factor’s problem if he can’t collect on that invoice, at least in some factoring agreements.

Factoring lets a predictable and steady cash flow to come in. It’s not a loan in any way, shape, or form. It lets your business have the flexibility to grow and get bigger because you get instant cash flow. Immediate capital to expand your business can end up resulting in more invoices, which will result in more money overall, even if you lose a lot of money on the invoice factoring initially. It’s sometimes considered a trade-off to expand the business necessarily. It’s up to an astute financial team to determine if it’s the right move for a business. It’s always a good idea if it can expand the business in a guaranteed way.

Regardless of your ground breaking ideas, any business you start will always face some core issues. Perhaps the most vital of these is cash flow management, having a healthy cash flow is pivotal for any business however delays in payment can easily set you back and create stress within the company. Invoice factoring, which is a kind of a accounts receivable financing can help you overcome your cash flow issues which you can then use to tackle other issues.

What is Invoice Factoring?

Invoice factoring is a kind of financing solution where a factoring company purchases your overdue invoices at a discounted rate which can range from 85% to 98% of its original value. It then collects the money from the company’s customers and remits any outstanding balance back to the company. By doing so the business has cash immediately available for use, which it can then use to pay its bills, pay rolls and suppliers.

Challenges Faced By A Typical Business

Here is a list of issues that a business will typically face.

1. Staffing & Payroll Payment: All businesses need to hire employees and pay them. However as the business needs to have its invoices paid first, any delays on that front can lead to delays in payment of the company’s staff. Such delays typically result is friction between the employees and the company’s management and the company can end up losing valuable workers. By opting for Invoice Factoring, you can be assured of having cash in hand so that you can pay your staff on time.
2. Sales: Increasing sales is also another major concern that a business faces. However if you are always getting paid late, you are going to have to hold your plans back. Invoice factoring can allow you to create new products, improve on your services and look into more opportunities.
3. Training Employees: With cash readily available, you can train new employees quicker and let them contribute to the company as well. You can also invest in training your managers and bringing them up to speed with the latest in management techniques and also arming them with the best tools required to increase the company’s bottom line.
4. Managing Change within and Without the Company: Having more cash readily available will help you respond to changes in the market faster, fueling your company’s growth.

So, in short a lot of your company’s hassles can be easily tackled simply if you have cash in hand. If you are running the type of business which requires cash now rather than later, then it is even more imperative to at least consider opting for Invoice factoring.

In doing this you are also ensuring that you do not need to rely on a line of credit from a bank as your growth will be driven by your customer’s demand for your products and/or services. Give Invoice factoring a chance, it may just be the solution to your accounts receivable hassles you were looking for.