Frequently Asked Questions on Invoice Factoring
If you’re a business owner, no doubt you’re interested to learn all possible financing means for your business. One popular method of business financing is invoice factoring or accounts receivables factoring. Are you familiar with this process? Let’s discuss the answer to some of basic questions you may ask regarding factoring.
How does accounts receivable factoring work?
Simply put, it is like selling your unpaid invoices to an invoice factoring company. Thus, instead of waiting up to 60 days for your customer to complete his repayment, you can already obtain the cash you need when you need it. In turn, the collection of the unpaid purchases would be done by the factoring company.
Usually, the factoring service provider will give 80% from the total amount of the invoices. When your customer has completed his repayment to your factoring company, you will receive the other 20% of your invoices. If your customer defaults on his payment, you lose the remaining balance in your invoices.
What are the requirements for invoice factoring?
First, your customer must have already received the products they’ve ordered. Some invoice factoring services may require for a company to be at least 2 years in existence and must reach the minimum amount of sales or profit each month in order to qualify.
Who are the perfect candidates for accounts receivables factoring service?
Businesses with credit worthy customers are great candidates for invoice factoring. If you have a large number of invoices in your account, you can stretch your working capital by obtaining this financing service.
Businesses who have a limited budget can benefit greatly with accounts receivables factoring. By selling your invoices, you can get access to your funds without delay. Furthermore, the task of collecting debts from customers is eliminated since your factoring company would be in charge of the collection.
Will customers agree to this set-up?
Many business suppliers are familiar with this arrangement. If your customer is new to the process, your accounts receivables factoring company would send them a letter, explaining the details about it. You can be sure that your customers would agree as many large companies are already doing this type of financing.
How long will it take to complete the accounts receivable factoring process?
Unlike traditional business loans that take time to complete, the procedure for invoice factoring is quick and easy. Application can be done online and approval can be expected immediately. As soon as your application has been approved, you can receive the cash you need in the same day or up to 5 business days, depending on the invoice factoring company.
Where can you obtain factoring financial services?
There are many invoice factoring companies that you can turn to. However, bear in mind that not all companies offering factoring services are worth signing up with. Take time to research and compare your choices. Also, research about the background and track record of the factoring companies you’re considering. Before signing up, make sure that you clearly understand all the terms of your factoring lender.
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