What is invoice factoring? Invoice factoring is an innovative method of business financing that allows clients to get accelerated payment on their slow paying invoices. Traditionally, when a company offers its services to other businesses, they have to wait between 30-60 days to get paid. Although the company has a large cash cushion in the bank can recover the cost of waiting to be paid, small and medium enterprises can not. This could jeopardize the company's ability to meet payment obligations exist, or worse, prevent them from using the new opportunities.
This which invoice factoring can be a very useful tool . A factor can provide a company with an initial payment of receivables. Factor then wait to be paid by the customer clients, while clients are getting the funds immediately. The transaction is structured as a sale of financial rights, not as a loan. Therefore, it is more focused on the power factor of the customer not paying accounts in the financial strength of the client. Making financial factoring a perfect tool for new, small and emerging features businesses.
Keys factor Selecting factor when looking for the right for your company can be a very complex task. Given the importance of the relationship between factoring your company's ability to succeed and grow, it is important that you do your due diligence when choosing a factoring partner. Here is a list of some of the important criteria when choosing a factoring financing company: Comfort Zone · Factor ': Almost every factor will not advertise that they can work with accounts that require as little as $ 10,000 per month and as high as several million dollars per month. Although that may not be true in principle, the reality is that managing a small number of accounts is very different from managing a multi-million dollar account. Factors that are most likely to develop a comfort zone or a "special option" when it comes to the size of the client. When choosing factor, always ask about the size of their typical client. Ideally, the size of your business does not have to be significantly below or above that figure · Monthly minimum:. Most of these factors will only take clients who undertake to administer a minimum amount of financing per month. The advantage of working for a monthly minimum factor is that the company will offer you better terms. The main disadvantage is that if the volumes are hoping you down, your company may be responsible for the preparation of the difference in cost.
When choosing factor, be sure to choose one that is under the minimum age is expected, or better yet, try and find a factor with no minimum · recourse vs non recourse:. Another road is a term that refers to the ability to re-sell invoice factor back to the client if an invoice is not paid within a certain period of time. Most of the reasons choose to operate in a fashion way. However, there are a number of factors which offers non-recourse agreement. Based on a non-recourse agreement, the factor will recover the losses on the invoice if the debtor becomes insolvent or bankrupt financial account. As a result, the factor of non-recourse offers some protection against bad debts. Even if you are generally better off with a non-recourse factor, most Member States agreements work well enough · Contract Duration:. Usually, factoring contracts require a minimum term of one year or more. While long-term contract allows the factor to offer better price, they may also lock your company into a factoring arrangement that outlives its usefulness. Your best bet is to try and find a factor that will allow you easily to terminate the contract (giving reasonable notice) after the service has outlived its usefulness · Fee Structure:. Factoring costs vary significantly across industries and usually relies ona) the financial strength of your customersb) your monthly volumesc) andd duration of your contract) you receivables.The payment cycle (also known as the "discount" ;) can be as high as 7% per month for small ticket transactions (less than $ 30K per month) at a level a few points for companies that want to will factor some hundred dollars. Also, make sure you understand the cost structure of your factors thoroughly before signing the agreement because many factors have complex fee structures · Service Level:. A very important criteria when selecting a factoring company is choosing a company that will provide the appropriate level of service. This industry is very diverse, and there are many factors that charge very low cost and provide a very impersonal "mass approach" to services. Conversely, there are factors that provide "high touch" level of service, for a slightly higher price. Most companies tend to choose the factors with the lowest level (at the lowest level of service usually) think that they will save money. In the long run, they end up regretting the decision.
You are usually better off looking for reasons to offer better service, even if it does you little premium.Should working on factoring broker / consultant? One way to simplify the process of selecting factors working in factoring broker. A good broker will help you determine if factoring is the best solution for your company and will help you find the most appropriate factors to serve you. Broker will also help you position your company to factor in the best way possible, to maximize the chances of obtaining funding for your company with the best terms. One of the most significant advantages of working with a factoring broker is that they will help you save time. The process of evaluating factoring company can be tedious and time consuming. A broker can help you avoid a problem because they do all the work to find the best factor for you. Finally, most factoring brokers are compensated through a finders fee by factoring companies, so you do not have to pay them for their services.