Invoice Finance (factoring) is a form of asset-based lending where companies are able to improve cash flow by selling their invoices or accounts receivable. In simple terms, companies factor to turn their invoices into cash to operate and grow. The main differences between factoring and traditional bank lending are the collateral used and the way payments are made. A bank loan is usually made against real estate, equipment and other hard assets.
With factoring, a business is not taking on any new debt. Instead, with factoring, a corporate obtain funds based upon its outstanding receivables; in other words, your corporate can receive funds for work that you have completed but, for which you have not yet received payment. Even better, you’ll receive these funds within 24-48 hours of submitting invoices.
Considered Invoice Finance (Factoring) as a Solution?
Factoring enables businesses to receive money as soon as they raise an invoice, delivering funding within a week to swiftly support cashflow when and where it is needed most therefore taking away all the stress of chasing customers for payment. The factoring service we offer enables the release as much as 90% of the value of each invoice, with the balance paid on collection, less a fee – no more waiting 30, 60 or even 90 days for payment.
How Does It Work?
Instead waiting 30, 60, 90 days or more for customers to pay, the business sells the invoice to a factor and receives an immediate cash advance (usually in 24 hours or less).
Factors charge a nominal factoring fee which is deducted from the reserve amount after payment is received from your customer. You do not have to modify your billing procedures except for the payment address. Your customers normally send payments to a bank lockbox in your name but this can vary depending on the factor.
Of course, you do not have to factor all your invoices. In fact, it’s a good idea to select the customers whose invoices you intend to factor, inform those customers where to send payment and maintain the billing consistency with the selected customers to avoidpotential errors and mistakes.
The types of Businesses for which factoring is ideal are:
- Start-ups and established businesses.
- Those struggling to meet their cashflow demands.
- Rapidly growing companies.
- Companies that pay staff and suppliers on a weekly basis.
- Businesses with overdrafts under pressure.
- Those with poor credit control.
- Directors who want to reduce their personal security commitment.
- Firms with too much cash tied up in unpaid invoices.
Compelling Reasons To Use Invoice Finance (Factoring):
- Immediate increases in cash flow and availability of working capital.
- Available to established businesses, start-ups and companies with credit issues.
- No restrictive covenants regarding the use of funds.
- No new debt on your balance sheet.
- No long term commitments.
- Extend persuasive terms to users without limiting cash flow.
- Feel more confident about having the cash to grow at YOUR pace.
- Reduce risk. If your client bankrupts, you still get paid.
- Additional funds to take advantage of buying opportunities and discounts.
- Unlimited capital. The only financing source that grows with your sales.
- Pay suppliers on time to enhance your company’s reputation and help you take advantage of every possible trade discount.
Invoice Finance (factoring) can be used by most companies that engage in commercial or government sales. The three most important requirements are:
- Your company must sell to other businesses or to government entities.
- Your customers must be credit worthy.
- Your invoices must be free of liens.
The Bottom Line:
Invoice Finance (factoring) insures a predictable and continuous flow of cash without adding debt to the balance sheet and without chasing customers for invoice payments. Cash advances from a factor can be used any way you choose without restrictions. Invoice Finance (factoring) provides peace of mind and the ability for business owners and managers to focus on driving their business forward.