Invoice factoring is an important term that is quite well known among small and large businesses. It is not at all a new term, and is quite helpful to the business's cash flow and reduction of costs. The factoring companies typically buy invoices from companies in return for a small discount or fee of typically 2%. Many companies prefer this method because it generates extra operational cash flow cost and cost savings through production activities or through earlier payments to vendors.
Companies that are involved in the sales or services usually have to wait for a period of 30-90 days, and in some cases more than 100 days to get their invoices paid. Small companies usually find it difficult to wait because it leaves the company with limited or no cash for carrying out the operational functions of the organizations. One of the common methods is for businesses to try to get loans from the bank, but there are many issues in taking this strategy. The most common issue is that banks take a long time and require an almost perfect client to make a loan. In many cases, the business does not need such a large loan for 3 to 7 years which is the normal duration of a business loan. Invoice factoring provides a type of advance that is similar to a bank loan, but only can be used much more wisely when the business has a need for the money. This way, factoring when needed can save a business the long term interest of the typical bank loan when the business does not have a need for the cash.
This is where the factoring accounts receivable company comes into the picture. Such companies are not traditional bank. They work on a different terms altogether. You can fill in the application form, submit the copies of the invoices that are expected from your customers, and get funding within days. The factoring company would evaluate your factoring invoices to find the authenticity of the bills, and then pay the invoice amount.
Factoring invoices also allows for your company to pay its invoices more quickly which can result in a windfall of benefits for your company. By negotiating with your suppliers, you can make take discounts for paying early. This will also lead to improved credit; however, this can only happen if your cash flow is strong.
Factoring invoices also saves you from the hassles of borrowing money from the traditional banks. The invoice factoring companies don't look for perfect credit history from their clients as banks require. The most critical item for the factoring company is to check the validity of the bills or invoices that are presented to them.
This method is quite feasible as compared to banks and other institutes. You don't have to wait for long time to get your money granted. The process is quick, and as soon as your invoices are checked and processed, the funds will be transferred to your account. The commission that you pay is also very reasonable if you are going with a long standing factoring company. This doesn't happen when you take loan from the bank, as the interest amount would have to be paid until the loan is completely paid up.