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Invoice Factoring

Accounts receivable financing also known as Invoice Factoring is a financial service that allows the client to liquidate outstanding receivables to financial institutions for immediate cash funding. Offering a working capital for business based on clients customers – their accounts receivable. For many small and growing businesses, accounts receivable are their most valuable asset. Invoice factoring can provide you with the capital it needs based on your accounts receivable. Look at factoring as a way of financing your sales. When you experience growth in sales, your financing automatically is increased. Crises arising from cash flow can be altogether eliminated where you no longer need to worry about slow paying customers. As a lending factoring company structures invoice factor services to meet specific business needs.

Some of the benefits of invoice factoring include cash flow acceleration, enabling you to make payroll or fulfil new orders. You are given the cash flow power to offer better terms to large customers resulting in increased sales. A small business is able to extend credit facilities without asking for COD terms. There has also been no debt incurred as invoice factoring is not a loan, you are able to pay your suppliers on time or faster giving you early pay discounts. This as a whole makes your entire quest for professional prosperity a smooth combination.

How it works is that Factors purchase your trade debts and collect these from your customers. A quality factoring firm collects funds in a professional manner, resulting in the relationship between you and your customers remains unaffected. Some factors will also provide bad debt insurance and this can add additional security for your company’s income. When taking on the services of invoice discounting the responsibility for debt collection remains with you and in most cases your customers will notice no difference. When utilising this service all payments you receive are paid into the account which is administered by the invoice factor company, you will then receive the balance after the agreed charges incurred have been calculated. Invoice factoring is available to all businesses that have strong financial systems in place to ensure the Invoice factoring company has minimal defaulters.

Once a factoring facility has been set up there is no limit to that amount borrowed because the level of finance is linked to the level of your sales. Hence your sales growth impacts your funding availability. This is very different from the usual bank overdraft facilities offered as they require constant re-negotiation and agreement fees.

Invoice factoring is a relatively low cost method for increasing your cash flow, but it is still imperative to look into the costs of alternate options before committing to any agreement. Many companies make potentially expensive mistakes when engaging in an invoice factoring service, as they simply pick the first factoring company they find. With the expansion of the factoring industry it is in your company’s best interest to research and explore all avenues of invoice factoring available to you. As well as be informed of many of the questions you should be asking potential factoring firms; the total cost involved; who will be communicating with your customers; the waiting period of the availability of cash against invoices; etc.