Invoice Factoring

Invoice Factoring


What is Invoice Factoring?

Factoring is where a third party agrees to buy your unpaid invoices for a charge. This can be as a percentage of the invoice value or a set fee. Invoice financiers can be independent, or part of a bank or financial institution.

Why would I want it?

Running a successful business is hard enough without having to constantly worry about being paid. Factoring can eliminate, to a degree, this part of your business allowing you more time to focus on getting more orders or sales. It bridges the gap between the point at which you make a sale, and the time payment is received.

How does it work?

You invoice your client and send a copy to the factoring provider. They then pay you up to 95% of the invoice value, usually within 24 hours. The factoring provider then takes responsibility for collecting the full invoice value from your customer. Once they have been paid they release the balance to you, less any charges. Credit insurance is also available as an option in case your customer defaults.

What are the benefits?

You get a large percentage of your money without having to wait for your client to pay you and do not have to waste valuable time chasing your customers for payment. This gives your cash-flow a big help with cash-flow and because you are no longer a debt collector your accounts department can focus on other issues. Most factoring providers will credit check your clients which can eliminate credit risks before it is too late.

What are the pitfalls?

Your clients will know that you are using a factoring company which might lead them to think that you do not have enough money in your business. Some clients might not appreciate dealing with a factoring company who can be quite forthright when looking for payment.




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