Invoice factoring is selling a customer's invoice in part or in full to receive fast funding from a factoring company. This means that you get an advance payment to an unpaid invoice from the factoring company.
How Invoice Factoring Works
Normally, a customer will receive goods and services from you, and you will send them an invoice. Once the customer gets to receive the invoice and accepts to pay you, you can then identify and approach the invoice factoring company that has favorable terms and conditions.
You can then sell that customer's invoice to the factoring company once you have agreed to their service fees. The invoice factoring company (the factor) will validate the invoice and notify your customer that their invoice has been sold off to the invoice factoring company. The customer should pay them directly. Once the customer pays all the money to the factoring company, you will receive the remainder of the cash minus the fee.
Advantages of Using Invoice Factoring for Your Business
At times, a business may suffer financial constraints, especially when most of its customers have received their invoices but have not yet paid. For a company to stay afloat, it will need to get fast funding to help with the everyday running of the business.
1. Fast funding When your company needs funding quickly to make payroll or purchase materials for a job, Crown can approve a new account within 24 hours. This allows your business to take on new projects, pay utility bills, or many other things that will help your business grow.
2. Faster processing compared to bank loans An invoice factoring company will take between 24 - 72 hours to process and give you an advance payment. The factoring company only gets to check the customer's credit and payment records to decide if they will offer an advance payment to you. A bank on the other hand will consider your credit.
3. Debt delegation You get to delegate the responsibility of debt collection of that particular client to the factoring company. The factoring company will send you the remainder of your cash minus a factoring fee once the customer completes payment.
4. Protection from loss Factoring companies will offer your business non-recourse factoring. This means that the factoring company will take the loss on that invoice in the event the debtor fails to pay.
Disadvantages of Factoring With Other Companies
1. Long-term commitment Many factoring companies will have you sign an agreement that will assure them of your long-term commitment. Most contracts have a minimum of two years. With Crown, there are no upfront fees, no monthly minimum and Crown doesn't lock you into a contract. Our business modal is simple, we want to earn your business every month by superior customer service and the capital your business needs to grow.
2. Factoring rates Factoring companies do major research on the clients assigned to them. In the event that your customers have a bad record of debt payments or always pay late, the factoring company will charge you a higher fee. With Crown, the more you factor the better rate you will get.
3. May harm your relationship with your customers This actually isn't true. Your customer will see that another company believes in your business and helping your company grow. People think that once your customer is notified of your involvement with a factoring company, they will take it that your business is not doing well and may look for new clients. We all need help from time to time and it's only smart to ask for help when needed.
What to Consider When Looking for a Factoring Company
Application fee. When looking for an invoice factoring company, look for one that doesn't charge an application fee. When your company has an account with a factoring company, they pay you within two business days. You should make sure that the invoice you provide is payable within 90 days, as an invoice that takes a more extended payment period is not eligible for invoice factoring.
Transparency. This means that the factoring company should not have hidden fees. They should also say what percentage of an advance rate they are willing to pay. Most factoring companies give between 80%-90% advance rate. Crown is only transparent, give us a call and see for yourself.
Takeaway
When your company requires fast funding to expand business, pay workers, buy stock, or bid for larger projects, a factoring company will come in handy to pump funding to your business in 24 hours or less. This will enable your company to grow your business and satisfy your customers. All you have to do is identify which company has favorable terms and give them your invoice for advance payment. Don't hesitate to call Crown Financial for a second opinion or just to talk business!
If you are a business owner or employee looking to grow but don't have the capital, feel free to [contact us][1].