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Best 9 Tips To Succeed With Invoice Factoring

June 12, 2020

Invoice factoring is a great solution to deal with cash flow problems. In invoice factoring, the factoring company takes responsibility and manages the credit control process and your sales ledger. They collect payments from your customers on your behalf.

Invoice factoring is much faster than a bank loan. Bank loans have strict policies to get approved, the loan approval process can take weeks sometimes months. Factoring can be approved in just 3-5 days. 

With invoice factoring services, you are just selling a valuable asset and not adding any more debt. Invoice factoring and bank loans are very different and have different terms and conditions. 

In this topic, we are going to discuss how invoice factoring is benefiting small businesses and how does invoice factoring work? 

TIPS TO SUCCEED WITH INVOICE FACTORING

We will now discuss some important tips to succeed with invoice factoring and how is it helpful for your business.

KNOW IF YOU ARE THE BEST CANDIDATE FOR FACTORING 

Many business owners have the idea that invoice factoring is best only for startups, this is untrue. Businesses of every industry and size benefit by using invoice factoring. It does not matter how long you have been in business, you might still be an ideal candidate for factoring.

You are the best candidate if you need to improve your cash flow. Companies use factoring for various reasons and to deal with problems like needing money for a new project or just to run day-to-day operations smoothly.

Also Read: 4 Key Differences Between Invoice Factoring and Merchant Cash Advance

ASK THESE IMPORTANT QUESTIONS

Knowing and recognizing if your business can benefit by using invoice factoring is a great way to guarantee success and growth. The factoring company will not believe that you are the best candidate if you feel that too. You can save your energy and time to figure out if you are a proper fit for factoring before the application process and just ask these questions.

  • Do your clients have the tendency to make late payments?
  • Due to late payments from your clients, do you have a problem paying your employees on time?
  • Are your clients reliable and have great credit?
  • Is your business free from tax problems and debt?

If any of the answers to these questions is a yes, then invoice factoring is a great solution for your business. You need funds quickly and easily. The factoring company you choose takes into consideration the reputation and the credit history of your customers. They need to make sure that there is no risk of non-paying clients to want to work with you.

Invoice factoring can be a great solution, if you need to increase cash-flow, pay your employees, and pay for debts that you owe, to expand your business and to introduce a new product in the market.

COMPARING FACTORING WITH OTHER FUNDING OPTIONS

A small business loan is not the only option for you to deal with financial issues and requirements. You don’t have to worry about interest payments and repaying the funds with factoring, unlike other traditional bank loans.

It gets impossible to make a proper cash-flow, as banks dictate the amount of a traditional bank loan. On the other hand, when you issue more invoices, it lets you increase the money you get.

A bank loan also decides how and where you can spend your money. For instance, if you take out a loan to pay bills, then you cannot use that money for other purposes like creating a new product. With factoring, on the other hand, it is more flexible and you can use the money in whatever way you wish to use.

There are no restrictions. A factoring company has all the information regarding your business and industry.

KNOW ABOUT INVOICE FACTORING

You should understand the terms and conditions of invoice factoring. How it works and what is the fee structure. You need to have all the knowledge before you plan to apply for it. What industries do invoice factoring work with and know what the rates are and extra services the factoring companies you choose provide.

HOW DOES INVOICE FACTORING WORK?

The basic steps of how invoice factoring works are as follows:

  • Firstly, you submit your invoice details to the factor or the factoring company to check if you are eligible for the factoring services. The factoring company will then check your credit scores and client information and reach an agreement.
  • The factor will advance you the money, once there is an agreement.
  • The factor will then collect the invoice with your customers.
  • The factor or the factoring company will pay you the remaining balance of your money, once the invoice has been collected. They would also deduct a portion from the balance as their fee.

CHOOSING THE RIGHT INVOICE FACTORING COMPANY

You should carefully select the right factoring company for your business. The terms can be different from one company to another. You need to see if you require an industry-specific factoring company. Some of these industries include medical, transportation and construction factoring. You also need to know what types of factoring services they offer. 

You need to make sure if the factoring company offers recourse or non-recourse funding? Every factoring company has different programs and terms and the fee structure is also different. You need a factoring company that meets your business requirements.

DIFFERENCE BETWEEN INVOICE FACTORING AND FINANCING

The most important difference between invoice factoring and invoice financing is who collects the unpaid invoices and who owns the invoices? The customer has full control of collections and also owns the invoices in invoice financing. The factoring companies have full control of collections and own the invoices in invoice factoring. 

Invoice factoring is much faster than a bank loan. Bank loans have strict policies to get approved, the loan approval process can take weeks sometimes months. Factoring can be approved in just 3-5 days.

INVOICE FACTORING ADVANCE

The initial advance you receive in invoice factoring is 85%-95% of the invoice value in advance. In invoice factoring, the factor deducts 2-4.5% per month.

ADVANTAGES OF INVOICE FACTORING

One other important tip to succeed with Invoice factoring is knowing the plus points. Invoice factoring can give you access to cash quickly. It is an ongoing cash-flow process; it doesn’t have to be a one-time financing option.

The factoring companies look at the payment history of your customers, giving you a better chance of approval. There is no kind of collateral required. These are some of the advantages of invoice factoring. 

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