Important Information About Invoice Factoring

In this fast-paced world, most small businesses are growing rapidly, and may become short on cash. When a company is growing quickly, its free cash is usually tied up in inventories and account receivables. One of the best ways a company can solve its cash flow problems is to factor its account receivables. Factoring is the selling of account receivables or invoices to a factoring firm for immediate cash. The invoice factoring acts as an outsource third party firm that handles various invoice processing tasks, including posting invoices, entering payments and depositing checks. Below are the most commonly asked question about account receivables factoring.

How is account receivable financing different from short-term business loans?

Cash flow is the lifeblood of the business. Most small businesses stumble because of cash flow issues. By factoring their invoices, businesses can get the cash required to pay off their existing debts, increase their inventories and take advantage of new opportunities. Short-term business loans siphon cash out of the business. This because they charge high interests and can take over some business properties if the business fails to pay back.



What are the major types of account receivable financing?

There are two major forms of invoice factoring, which include recourse and non-recourse factoring. In recourse factoring, the factor makes your business liable for any invoices that are not paid in full. In non-recourse factoring, the factor takes the risks of the invoice when they choose to buy it from you. A non-recourse factoring firm may offer you a lower purchasing price to compensate for the added risks it is taking. Depending on your current invoice payment history, you should select the most viable financing option for your business.

What are the benefits of account receivable financing to your business?

Early payment of discounts: By financing account receivables, you will be able to pay your own invoices early, and take advantage of early payment discounts.

Flexibility: Most factoring firms do not require you to factor all your invoices. They allow you to choose the invoices you want to factor. For instance, you can choose to factor invoices of only those customers that pay slowly.

Build your business credit: By paying your bills earlier, you will build the credit worthiness of your business. This means you can also qualify for other types of business loans.

Account receivable financing is an important financial tool designed to allow the business to access quick cash so that they can use it to operate and expand their business. Remember to consider factors such as experience, location, previous records, factoring fees and flexibility, when hiring the firm to provide you invoice factoring services.