Invoice Factoring: Hot to finance growth without debt or banks

 There are few bigger challenges for business owners and managers than waiting 30 to 60 days to get paid by their customers. Although large businesses can usually afford it, smaller businesses can't afford the wait. As a matter of fact, waiting to get paid on their invoices can create cash flow problems that affect the owners ability to meet payroll or pay the company's bills. This problem can be more frustrating if the business has a number of orders that it cannot fulfill because its cash is tied up in unpaid invoices.

How can invoice factoring help you?

Invoice Factoring, also known as accounts receivable factoring, is a financial tool that allows small business owners to capitalize on the power of their slow paying invoices. It allows you to turn your invoices into immediate cash, enabling you to fund your business operations. Although it is not a well-known fact, invoices from strong credit worthy commercial clients are excellent collateral, especially for factoring companies. Although most banks won't take invoices - factoring companies are more than willing to provide you with financing based on them. This makes it an ideal financing vehicle for small and mid size businesses, as well as knowledge-based companies and employee intensive firms.

How does invoice factoring work?

As opposed to most banks that lend you money against hard collateral, invoice factoring companies buy your invoices outright. The factoring company buys your invoices and provides you with funds immediately, while they wait to get paid by your customers. Factoring is best described with an example:

1. Let's say that you sell services to Company A and Company B. As soon as you provide the services, you invoice them.

2. At the same time, you send copies of the invoices to the factoring company, who buys them and provides you with an advance payment for them.

3. The factoring company waits to get paid by your customers. Once paid, any remaining funds are remitted to your company.

The invoice factoring process can be repeated every time you invoice, providing you with a flexible line of financing that grows with your business.

How much will an invoice factor advance my business?

Factoring transactions are commonly done as a two-installment sale. The first installment is called the advance and is paid to you as soon as you submit the invoices. Advances can range anywhere from 60% on the low end up to 90% of the gross value of the invoices. The average advance is about 75%.

The remaining installment, called the rebate, is remitted to you once the invoice is paid. Factoring fees are deducted from the rebate.

The cost of invoice factoring

The cost of a factoring transaction is determined by three criteria. First, the credit worthiness of your customers. Second, the length of time that your invoices take to get paid. Lastly, the monthly factored volume.

Your cost, actually called a discount, can be as low as 1.5% or as high as 12% per transaction depending on how you fit the previous criteria.

How can I determine if invoice factoring will help me?

Generally speaking, invoice factoring will help you if you have a business that has reasonable profit margins or is growing quickly. Mid size companies with 20% or more profit margins or large companies with 15% profit margins can usually do well with accounts receivable factoring.

About the author:

Invoice Factoring Group and its small business invoice factoring subsidiary can provide you with factoring quotes at no cost to you. Marco Terry, its president, can be reached at 866-730-1922.

 Marco Terry

More Articles 

Personal Finance - Terje Ellingsen
Personal finance is not an issue you should be forced to face when in a crisis like so many people end up doing. Your personal finances are vital for your life, security and prosperity. Face it and don't hide your financial issues under the rug....

Refinance Your Mortgage To Rebuild Credit - Carrie Reeder
Refinancing your mortgage is one way to rebuild your credit, particularly if you have recently declared bankruptcy. With a poor credit history, you can find refinancing through a sub prime lender. To rebuild your credit, make regular payments on...

Refinance mortgage loan - Jakob Jelling
A refinance mortgage loan can help you get cash for the equity in your home. Home equity refers to the value of the house that has already been paid for. This will include your down payment and the all the monthly payments you have been making. Once...

Bad Credit Mortgage Refinance - Should I, Shouldn't I? - Roy Thomsitt
It is a common financial scenario across households in the Western world. Multiple debts have started to build up: a car loan here, a department store loan there; a bank loan here and several credit cards there. While all may have seemed manageable...

Quick Books and Finances - Adam Smith
When starting a business one is bound to face a variety of difficulties. Sometimes it seems the problems of creating a new entity are endless. You must find a source for financing. Somebody will have to cut through the red tape and deal...

Refinance Online - Carrie Reeder
If you want a low interest, low payment mortgage refinance, refinancing online could be the answer. There are many mortgage companies who specialize in mortgage refinancing online. No matter what your credit history, you can refinance your mortgage...

Unemployed Loans : No Job???? ...... Let Us Finance Your Needs. - Scarlette Riley
Unemployment according to The Columbia Encyclopedia is a condition of one who is able to work but unable to find work. Unemployment is often accompanied by a scarcity of funds. The situation becomes grimmer if the job lost is the primary source of...

Home Refinance Closing Costs - Things You Should Know - Carrie Reeder
Home refinancing closing costs should be consider before signing a contract. You can actually lose money on closing costs if you aren't careful. Shopping lenders can help you find lower fees, but you may find other financing options have lower...

Cash Out Refinance Mortgage Loans – Home Equity, 2nd Mortgage Or Cash Out Refinance Loan - Carrie Reeder
There are some definite benefits to doing a cash out refinance. Just make sure that overall you are not going to be spending more money in fees and interest doing a cash out refinance as opposed to a home equity loan. When you do a cash out...

Auto Refinancing Guide - How to Refinance Your Car Loan - Claire Calkin
At some point in a person's life they come to a conclusion that they are paying more for something than they should. If you wish to break out of this cycle and refinance your car loan therefore saving you thousands of dollars in interest and high...

When is the right time to refinance your mortgage? - Jeff Lakie
You've heard that interest rates are down and you think it could be time to refinance your existing mortgage, but the entire loan application process was so exhausting during the initial loan that you aren't sure it's worth the hassle. You could...

Home Mortgage Loan Refinance - Refinancing A Fixed Rate Mortgage - Carrie Reeder
Refinancing a fixed rate mortgage is usually only suggested when interest rates fall, but you can also save money by changing your loan terms. You can also pull out part of your equity to pay bills or renovate. Lower Interest Rates In...