Accounts Receivable Factoring –
Why select only one Factor Finance Company. Until you see what a few of them have to offer for your Accounts Receivable Invoices.
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Accounts receivable financing companies are ready to advance you cash that is collateralized by your outstanding invoices, giving you an excellent way to put more money into your business right away. With invoice financing, you could get a fast advance of about 85% of the value of your invoices, with most of the other 15% paid to you later.
One of the most frustrating aspects of running a growing business is waiting for your invoices to be paid – especially when some customers don’t pay on time. Money and services you’ve extended as credit to your customers represents funds you can’t use in your business today, which ties up your working capital.
In order to stay competitive, you need cash on hand for day-to-day expenditures.
Here is an IDEA!
What if you could get immediate cash for those invoices, while lowering your liability. Yes, holding onto invoices is a liability for your growing business.
This is where accounts receivable financing comes in – also known as invoice financing. While accounts receivable financing can be a fairly expensive way to finance your business operations, it can provide you with more predictable cash flow. This can ease the burden on your business if you’re running short of capital or immediately need to cover other expenses, such as fuel, payroll, recurring business expenses, etc.
Once you agree to sell an invoice (or invoices) to a financing company, they will advance you about 85% of the total value of the invoice(s). The remaining 15% of the balance will be held in reserve. From this reserve amount, the financing company will collect their first fee (similar to a processing fee, it can be around 3%). Following, the financing company then charges a “factor fee” dependent on the time until the invoice is paid. This is almost always calculated on a weekly basis. For example, a factor could charge 1% each week until the invoice is paid.
You will then receive the reserve amount, minus the total fees accumulated, once your customer pays the invoice.
Although the above example is one way of calculating some of the costs associated with Factoring, there are other types of accounts receivable financing companies that will simply advance you 100% of an outstanding invoice, and you have to pay it back weekly, with fees, over a set period of time – usually around 12 weeks or until the advance is paid off. You’re not waiting for your customer’s payment to settle this debt.
Some Factoring companies also help out with back office support, something you’ll need to ask them when they call to get more information about your invoices and business.
Why settle for one offer from a Factor, when you can use FactorApp and get a few offers. Find out what type of invoice Factoring works best for your business and make sure you know there are different companies offering different terms, rates and deals.
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