Understanding an Invoice Factoring Transaction
Factoring is rapidly becoming a common way to finance a business, especially now that business loans are difficult to get. It is a good business financing tool that can work very well for growing companies - or companies that have cash flow problems.
Invoice factoring is a specialized form of financing that is designed to help companies that have one very specific problem - they sell to their clients on net 30 to net 60 terms but can't afford to wait to get paid. Businesses find themselves with this challenge due to a number of reasons but the two most common reasons are poor capitalization or fast growth. As a matter of fact, fast growth is the main reason companies chose to do business with a factoring company. For example, a small company gets a very large order from a client. They can deliver it but can't afford to wait 30 days to get paid because they have their own expenses to cover. One option is to turn the sale away. Another one is to factor it.
So how does factoring help a company that can't wait 30 to 60 days to get paid? Simple - it provides a cash advance against those invoices. The advance enables the client to cover business expenses without worrying about the timing of client payments. The transaction is settled once the end customer pays the invoice in full.
Most factoring transactions are structured as an invoice purchase rather than a business loan. The factoring company buys the invoice from the client and pays for it in two installments. The first installment is called the advance and can be anywhere from 70% to 90% of the invoice value. The remaining part (10% to 30% of the invoice) is not advanced and used as a reserve to cover factoring fees and invoice discrepancies. The second installment, called the rebate, is provided once the invoice is paid in full. The amount rebated is usually the reserve, less any fees and payment discrepancies.
One of the biggest advantages of factoring is that is available to companies that have no hard assets (such as real estate) and little or no credit history. This makes it an ideal funding solution for small and medium sized companies that can't afford to wait up to 45 days to get paid by their clients.
Questions and Answers
The new year of 2009 is starting off with many economic challenges for small to medium sized businesses.small business owners must be quick to put plans for the New Year into works in order to save money, maintain cash flow during these tough times. Learn how invoice factoring can provide much needed reseouces along with other tips for managing cash flow.
Does your growing staffing agency need financing? Read this article to learn how invoice factoring can be used to finance a staffing agency.
Having problems securing or increasing your line of credit? Read this article to learn how invoice factoring can replace a line of credit.
In a fluctuating economic climate, one of the easiest ways for businesses to attain working capital is through invoice factoring. Far West Capital is strongly committed to providing businesses with convenient invoice factoring to solve their cash flow challenges. Visit Far West Capital at www.farwestcap.com to increase your cash flow now.
There are three main advantages to hiring an invoice factoring company: immediate cash flow, minimizing the headache of collections and the ability to facilitate the steady growth of your company by securing new customers. If you need a committed invoice factoring company, Bay View Funding specializes in invoice factoring and helping businesses to grow and prosper.
Invoice factoring is a potent tool that lets businesses capitalize on their biggest asset – their invoices. To put things simply,it allows a business to turn its slow paying invoices from good customers in to immediate cash.
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Are you looking for a business financing solution for your company? Does your company have cash flow problems and needs funding? Read this article to learn if factoring financing can help your business.
Do you own a freight carrier or freight brokerage that has cash flow problems due to slow paying clients? Read this article to learn if freight factoring is the right solution for your business.
If your company at risk of missing payroll? Read this article to help you and your financial adviser determine if invoice factoring is the right solution for your business.
Does your company have slow paying customers? Read this article to learn how to handle this common problem.
Do you own a transportation company that needs financing? Read this article to determine if freight factoring is the right solution for you.
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