Small companies often need help to manage their cash flow because they can’t invest huge capital. Invoice Factoring is an ideal form of financial solution for small businesses or start-ups. This article will help you understand the details of Invoice Factoring and how it will help your industry.
How Is Invoice Factoring?
A company sells its unpaid invoice to a factoring company or accounts receivables factoring. Who, in exchange, offers you a percentage of money from the invoice value? For payment in a B2B business, the waiting period to get money from the customer is 30-60 days or even 90 days. Invoice Factoring helps you skip the waiting period and continue your business without a financial crisis.
Business factoring companies offer 60 to 80 per cent of the invoice amount; after completing the order, the company pays the rest money deducting the charge fee. They change a minimal amount as a charge fee, and no hidden cost exists. Additionally, you can record the transaction as an end-of-year tax deduction.
Specific Requirements Of Invoice Factoring
Invoice factoring has some requirements before applying for Commercial Financing. Here are some standard conditions considered before the agreement:
· Good Credit History
Bad credit means a high risk to the business factoring companies, so if you have good credit, it’s easy to get loans.
· Good Profit Margin
You must have a 10 per cent profit margin in your company. If you have less than that, after deducting the charge by the Invoice factoring company, you will end up with a loss.
· No Claim On The Invoice
Some companies pledge their Invoice as collateral to banks or other financial companies for taking a loan. In such cases, financial companies can place a lien on your assets. So you won’t qualify for factoring services.
· Good Level Of Revenue
Factoring companies check a certain level of revenue of that company before paying the money. This level of revenue varies from company to company. So check the Invoice factoring service requirement before you consider their service. It is hard to show thousand dollars as revenue for a small business.
Different Ways Invoice Factoring Can Benefit Your Business
The concept of factoring varies from industry to industry based on the cost of factoring services. Some specialised factoring services are Medical factoring, Trucking, oilfield, Manufacturing, Staffing, Commercial Real Estate Loans etc. Here are a few benefits of invoice factoring:-
· Get Your Fund Quickly
Once everything goes well in your agreement process, you’ll get your money quickly. Maximum it will take a week from the date of the agreement. If a company faces server financial crisis, the factoring service supports them to solve the problem and pay your money in 24 hours.
· Maintain Better Credit Control
Start-up companies who struggle to maintain a good credit score consider Invoice factoring services to improve the score. But the fact is, it does not change the score.
Invoice factoring is profitable because it stabilises the cash flow. It is a convenient way to stay ahead of the bill payment and deliver your item timely.
· Use The Money For Any Business Purpose.
Traditional loans restrict the usage of money, like the loan amount available to buy company-related products. In contrast, Invoice factoring allows you to invest in any purpose.
· Free From Collections Efforts
After the business factoring agreement, the factoring company becomes liable for collecting your unpaid invoice. So you can relax if you don’t get timely payment from the company. You can devote more time to your business development than collecting money from customers who constantly pay late fees.
· Reduce Risk Of Bad Debt
Generally, small businesses don’t consider invoicing factoring. But your bank will never approve a loan without any credit check or proper company documentation. In comparison, Invoice factoring services will provide you with a short-term loan for your invoice as collateral. Moreover, they will check the creditworthiness of your client for you; this way, you will get payment assurance from them.
· Invoice Factoring Is Affordable
Invoice factoring companies are affordable, and there is no hidden charge for the fund. Moreover, factoring services deliver good ROI as you can invest the cash for meaningful purposes.
No matter which industries you belong to or the size of your company, invoice factoring is the best solution for Commercial Financing. Now you are well informed to decide whether or not it is helpful for your business. Invoice factoring will meet all your needs to grow the business model.