If you want to know how to do factoring, this article will be a good start. First, the factoring company will deduct a small percentage of the final balance owed by the customer as the fee. It is based not upon your credit score or your credit history but the credit of the customers you deal with. You don’t have to wait for your customers to pay you in order to continue your business operation. There are many customers and shippers who do not pay on time and this could affect your relationship with your creditors. If you learn how to do factoring, this will no longer be a problem for your business.
The payment on the invoices goes directly to the factoring company to repay the advance made to the company seeking accounts receivable financing. Always keep the original invoices and bills to submit to the factoring company. Accounts receivable factoring involves the sale of assets, which is to say the invoices you have for your business. One method of achieving precisely that is the commercial invoice factoring approach.
The Factor then will take a close look at the invoices from your customers (who are the debtors in this case) and will evaluate both the legitimacy as well as the creditworthiness of the individuals in order to decide if they have the ability to pay the money that they owe as well as can they afford to pay on time. With commercial invoice factoring, the business will be able to raise significant amounts of capital within a short space of time indeed, usually within the space of just a few business days. That’s not as fast as getting money using a small business credit card, but it’s much faster than a traditional small business commercial loan from a bank. Indeed, a company can be subject to a Chapter 11 bankruptcy proceedings, and yet still be able to acquire the money from this method.
Company Image Distortion
In the past, when a company employed the services of a factor, it was considered a sign that the respective company was in financial difficulties. That is becoming less of an issue. When these companies offer you credit, you must ensure that you meet the credit requirements, and image isn’t a big factor in the decision.
Factoring can be an efficient way to minimize the cost and risk of doing business overseas. If this is a concern for you, then you may wish to rely upon business financing methods that will not involve the business owner having to relinquish and forfeit equity in the business as a whole. Business owners that can’t secure a conventional loan can also turn to accounts receivable factoring. One is able to use accounts receivable as collateral for obtaining immediate business funds. For many businesses the ability to obtain money through banks is no longer a possibility, which is why they must look to other methods, such as invoice financing (which is another name for accounts receivable factoring).
With factoring, the rigidities of traditional funding are removed, the funding grows with the company, making it capable of taking advantage of business opportunities, which require ready available cash. This means that if the company is currently enduring cash flow problems, then the issue can be easily rectified by relying on this specific method of finance raising. Rather than waiting for 30 to 60 days, one can immediately sell its invoices to the factoring company and get quick cash for meeting its operational and organizational expenses. With FACTORING, cash flow is on schedule and their business credit is assured. It is a legitimate transaction that takes place between two companies–one of the companies needs cash that the other one has to offer.
The factoring company simply gives you cash based on the amount of money your clients owe you. Carry a list of blacklisted customers according to the factoring company and don’t deal with them unless it’s strictly cash upfront! The money obtained from a factoring contract can be used for the company’s debt reduction, which in turn reduces interest expense and finance fees for the company. With that in mind then, the commercial invoice factoring process can be an invaluable one for a business owner whose time is already at a premium, as it means that they can delegate the most tedious part of the business directly to the factoring agency. Accounts receivable factoring has many uses for funding business organizations.