7 Invoice Factoring FAQs

ID-10042964If your business needs cash quickly to grow your venture consider invoice financial as a creative financial instrument to free up vital money. Waiting around for invoice payments can be a frustrating experience. Clients with poor payment habits and lengthy invoice terms can freeze your cash flow. Suppliers and employees might severe relationships unless you can pay them in a timely fashion.

What Is Invoice Factoring?

Invoice factoring helps you to cash in on your invoices on the same day you release them versus waiting for a set period to raise the money through invoicing.

What Is the Cost of Invoice Factoring?

Costs will vary from business to business but financial companies will generally charge between 0.5% and 3% of your invoice value. This constitutes the service charge. Add in a second discount charge to tabulate your total costs. Discount charges are based on the interest rate of funds forwarded to you. This cost is charged monthly and is calculated on a daily basis as it is expressed as a percentage over fluctuating bank base lending rates. Consider a common rate of being charged 2.5% over the bank base lending rate as a general benchmark to work with when calculating costs.

What Are the Chief Benefits of Invoice Factoring?

Businesses using invoice factoring can separate collection and sales functions, raise sufficient cash for business purposes such as paying off suppliers and if you sign on for bad debt protection you can worry less about customers who are delinquent on payments.

 Who Can Use Invoice Factoring?

Any cash-strapped business which desires to free up cash flow for critical business investments can use invoice factoring as an alternative to expensive business loans. Being under the gun to pay suppliers quickly while waiting to receive payment through long term invoice contracts can be a frustrating experience for business owners. Factoring can help you free up cash for paying employees or suppliers. Small, start-up business can most benefit from invoice factoring since these entities rarely have the cash to grow business and need assistance with credit control.

What Is the Turnaround Time for Cash Received?

Most financial institutions can offer same day turnaround on cash delivery if you fax invoice copies in the morning. Expect a bank deposit in your account by the afternoon if you send out invoices early in the day.

Should I Choose Invoice Factoring Over Bank Loans?

It depends on the needs of your company. Big scale purchases like property, plant or equipment might require a bank loan. If your business needs quick, steady cash flow to pay employees, or suppliers, or buyers consider using this alternative financing option as a flexible, immediate alternative to going the bank loan route. Weigh out the specific needs of your venture to find the appropriate alternative for your business.

How Do Customers Know Where to Send Invoice Payments?

Write your customers to notify them of the change in invoicing procedure. Notify each customer that payment is to be sent to the financial company handling the invoice factoring. Photo Credit