Strong cash flow is important for the success and prosperity of any business. However, companies that use invoices face particular difficulties when clients that owe them money are slow in paying their bills. One solution to this dilemma is invoice factoring. Here is some information about this form of financing so that you can determine whether it is a good solution for your business.
The Basics of Invoice Factoring
Invoice factoring involves selling your unpaid invoices to a factoring company for an immediate cash advance, which is usually between 80 to 90 percent of the value of the invoices. When your customers pay their bills, you receive the balance of payment after the factoring company has taken out its fee. The advance varies depending on the industry you work in and the creditworthiness of your customers.
Types of Factoring
The two types of invoice factoring are known as recourse and non-recourse factoring, and the difference has to do with who is responsible if your clients do not pay their bills. In recourse factoring, your company has to pay the factor if your customer does not. Non-recourse factoring puts the responsibility for the debt on the factoring company, but fees are generally higher when you use this form of invoice factoring.
Benefits of Invoice Factoring
One of the main benefits of invoice factoring is the boost that it gives to your company cash flow. Instead of waiting for clients to pay their bills, you can pay your employees, improve your marketing, upgrade your equipment, and purchase inventory and supplies. Generally, you have the funds on hand to do whatever is necessary to spur business growth. This form of financing is easier to obtain than traditional loans or lines of credit because factoring companies are not primarily concerned with your company’s credit score, but rather the credit scores of your clients. Even businesses that are just starting up can qualify for this type of funding.
For more advice on invoice factoring, get in touch with Nations Capital Financing.