How do Invoice Factoring Companies work?
Companies that are paid by their customers with extended terms like 30, 60,90 or 120 days need access to that money right away to process new orders. Invoice Factoring Companies will advance a percentage of the invoice (typically around 80%) within a few days and then when the invoice is actually paid the factoring company will release the remainder of the invoice minus their fees. Factoring companies help businesses improve their cash flow by getting them the invoiced amounts quicker.
How Invoice Factoring Companies Begin
Invoice factoring is first started by the factoring company purchasing invoices generated by the client. When this purchase is made, the client can receive immediate funds. This is typically used to pay for business expenses.
The Invoice Factoring Process:
1. Your company submits the invoices
2. Your advance is sent from the invoice
3. The client typically pays us 30 to 90 days later
4. You receive the remaining amount less the factoring companies fees.
You Will Need To Set Up An Account
This process is simple for those who are afraid of going through a complex procedure to have this service done. Documents needed, can include legal and contract documents. Once these documents are signed, Neal Business Funding will notify your customer that you are factoring your invoices with us. Factoring is a very common process with large companies so don’t be intimidated.
How Long Does The Factoring Process Take?
For most companies that are in need of our assistance, the process takes one to three days. In some situations, the process may take longer. This largely depends on the circumstances of expectation your company desires or needs.
When do you get paid?
As soon as the account is set up, and an invoice is submitted, your company will receive payments. This is the biggest reason people choose invoice factory companies. The goal is to get paid as soon as possible. Receiving your payment typically goes through this process:
1. The company sells their schedule of accounts/Invoices to the factoring invoice company. You get to only place the schedule of accounts you wish to sell. If you would like to wait and receive the full amount of the invoice, we allow you to do so.
2. The amount of the advance is at an average of 80%;However , it can range depending on the company type. Some receive 95%, while others receive 70%. This is due to the fee owed to the factoring company.
How Is This Money Released To Your Business?
Typically, clients choose to receive direct deposits. This is one of the fastest methods of payment as the money usually appears the next day. Some banks will only receive these funds on weekdays. If you need to receive the funds as quickly as possible, a wire transfer may be set up.
Rebates typically take 30 to 60 days. This depends on when your clients pay you. Slow invoices can be 30 days or more. Your rebate will be received as quickly as possible.
How long do most companies use factoring?
This process opens up the opportunity to get paid much faster than your company would if they waited for the invoice to be paid. This allows a greater and steadier amount of cash flow to flow into the business. Because this process usually enhances the way the business functions, most continuously do it for years.
Will They Work With New Businesses?
This is the great thing about Factoring, we do not take your credit or your business credit in to consideration for this type of loan. We focus our underwriting process on your customer that you are invoicing. We need to make sure they are creditworthy and will actually pay the invoice that we are advancing you on.
The credit strength of a business, if not established, will not disqualify them. One component of approval lies with the company’s predicted success. Traditional funding options may have denied you or let you down with their effectiveness. Factoring companies can allow you to receive the money even if you are not established. A company that’s only 30 days old can receive factoring.
Typically Factoring Loans are non-recourse, that means we will not come back after you if your customer does not pay us. This takes the burden off of you to worry about when and if the customer will pay and puts it solely on us. For this reason, we will do extensive research to make sure the customer pays their bills on time and has a good business credit rating.
Faster Money Than Other Types Of Lending
There is almost no other type of lending that allows you to get money as fast as choosing an invoice factoring service. Getting your money quicker so you can help fuel and advance your company requires a decision to go with a factoring company.
Trends In Customer Credit And Payment
For a factoring company to work properly, they need to analyze two crucial components. A customer’s credit strength and your trends in customer payments. There needs to be some establishment, although not a long history, for them to be able to perform their function and work properly. These two components may influence the cut of profit they receive.
Your Need For Employees to collect debts Will Be Diminished
Debt collection can mean added personal to your business to collect those debts. Many go with invoice factoring companies to avoid this added expense. A factoring company will end up costing you less than the employees you’d need to hire to collect these debts. Plus, employees would not allow you to gain your money faster.
Factoring vs traditional business loan
When business loans offer finance, they come with spending restrictions. They only allow your company to allocate the funds for certain things that require payment. This does not play a part in invoice factoring lending. The money is free for your business to use right away and for any purpose. Business lending companies will put their restrictions on their legal and binding contracts. There is no way to get around it.
No Recurring Payments
The way invoice factoring companies work requires no recurring payments that would have to be made to a company that granted you a traditional business loan. They take care of their payment by taking a cut of the invoice once it has received payment. Managing recurring payments on a business loan can be strenuous as it is impossible to predict the amount of customers and invoices that will be fulfilled.
How This Process Promotes Your Businesses Growth
Now that you have a system that allows you to keep your business profitable and organized, it takes some of the burden out of stressing over cash flow. Invoice factoring companies do not just release anxiety, they help you maximize your profit. You can feel secure that your invoices will be paid and that the payment will be will be fronted on the next business day.
As said, those who go with an invoice factoring company rarely choose to go a different route instead. It is the most strategic move a business can make when it comes to receiving their money as quickly as possible but not being held up to make payments on a recurring basis. Factoring companies have an easy application process in which most businesses are approved. It gives businesses that are in the beginning of their growth the ability to make surviving and thriving a possibility. Traditional lenders cannot take chances based on the way they are set up. Invoice factoring companies can work with even the smallest businesses and feel secure that they will receive payment in a non-predatory way.