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Invoice Factoring As A Short-Term Cash Flow Solution
Invoice factoring refers to the practice where smaller companies
sell invoices in order to receive money today. IN this case they
do not have to wait for a credit period of 30, 60, or 90 days.
Thus by selling invoices smaller companies do not create debt.
This practice of invoice factoring is basically used as a
finance management tool.
This practice of invoice factoring is usually adopted to avoid
any loans or giving any collateral against availing any loan.
The fee for invoice factoring is paid in terms of discount. This
discount can ranger anywhere between 2.5% to 7%. As a result of
invoice factoring the smaller companies avoid exhibiting any
loans on their balance sheets plus they also do not have to pay
any interest for the money taken. This results in better profit
figures.
Various agencies also help small companies in invoice factoring.
These agencies set up the company with the right factor for a
particular factoring situation. If someone has an invoice or any
receivable to be factored then these agencies come out to help
in the same.
These agencies help the manufacturers, distributors, importers,
exporters, wholesalers, contractors, suppliers etc equivocally.
They also help truckers in construction invoice factoring. These
agencies help to locate best factor for a particular situation
within the area or can also help to choose from nationwide
factoring companies to avail the best rates. They usually
customized solution as per the clients need. To avail the
services of such companies firstly a form needs to be filled out
stating the type of receivables and other details required for
invoice factoring. Then these companies approach the probable
paying parties that avail invoice factoring. Some of these
agencies assume the risk in the deal for non-recourse factoring
where the client is not required to pay back.
There are different types of companies with different types of
rates for factoring. Any invoices or receivables to the amount
of $100,000 can be factored immediately. The average rate
payable for discount in such cases is 2-5%.
Some agencies specialize for a certain category of invoice
factoring. For example, some agencies indulge only in invoice
factoring for medical industry. Some agencies, which cater to
small and medium businesses for invoice factoring, create
invoices online and receive immediate funding. They usually give
a 24 hours turnaround. Other types of agencies also give funds
to small businesses for their day to day operations against
collateral of their invoice or purchase order. These kinds of
agencies also buy mortgage notes, structured settlement annuity
or medical receivables.
About the author:
Henry Byers, Receivable Factoring
advisor - focusing on Invoice
Discounting and Invoice Factoring
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