Invoice Factoring Services
Growing companies utilize invoice factoring services to attain needed capital and to survive in a competitive marketplace. These services do not offer loans to companies, but they do provide cash advances that are based on outstanding invoices that will be paid thirty to sixty days in the future. The need for these funds to meet expenses such as payroll and other liabilities can make such advances invaluable to many organizations. Knowing that there is money that will be coming in at some point in the future, but not being able to pay bills in the present can be a frustrating dilemma. Sometimes a business is growing so quickly that accounts receivable can't keep up with current expenses. Waiting for customers to pay as suppliers go unpaid is no way to do business. The help that is provided by invoice factoring services can mean that business owners feel more in control and are able to pay their bills on time and keep a company's credit rating in good stead. These agencies can also help a business maintain cash flow at consistent and healthy levels. The roll of these factoring agencies is to basically buy up outstanding invoices from the companies that originally issued them. Later, the agency itself will collect on the invoices and may charge interest to the business that received the money in advance. Clients who were originally billed are still responsible to pay off the invoice.
The way that invoice factoring services work is actually very simple. A company will forward all outstanding invoices to a purchasing agency when a new account is established. New accounts are only established after a check by the UCC, or Uniform Commercial Code is run. This check will insure that there are not any outstanding liens against a company's invoices. Credit checks on invoiced clients are generally done as well. Once these steps have been completed, clients are contacted and informed of a change of address that should be used when the outstanding invoice is paid. An invoice advance is then sent to the business that has chosen to utilize invoice factoring services. The advance will reflect to total of the invoices submitted, minus any factoring fees. There are many reasons to take advantage of the help that is offered by these agencies. Cash flow problems can be rectified or eliminated through the use of the advances that are provided. For businesses that have limited lines of credit, or would rather not pursue loans through traditional lenders, having invoices factored may be a wise alternative. When accounts receivable are overdue, they can be difficult for a growing and busy company to pursue. A factoring agency can take the time that is needed to pursue these delinquent accounts and get them off of a client's books for good.
A variation on invoice factoring services is presented by companies that offer purchase order financing. If a business has accumulated a number of orders, but does not have the funds on hand to purchase the raw materials from suppliers that are needed to complete these orders, purchase order financing can come in handy. This can particularly be the case if a larger than usual order has been received. Purchase order financing will pay suppliers for needed materials and allow a company to quickly complete an order. The loan will then be paid off when the order has been completed, shipped, and paid for. There will be certain criteria that should be met before a company is eligible for purchase order financing. This criteria could include profit margins of twenty five percent or greater and customers who are considered reputable and a good risk for the lender. This type of financing is generally easy to attain and can be very beneficial to companies that are experiencing rapid growth. In some cases, invoice factoring services may require that businesses sell off their outstanding accounts receivable at a significant discount. For this reason, business owners should do careful research and comparison shopping before deciding to do business with a particular agency. Selling invoices at a drastic discount, plus paying any associated fees can cut deeply into an organization's profits.
Medical practices can benefit from these services as well. There can frequently be quite a lag time between the provision of original medical services and payment by insurance companies. In the meantime, there are many expenses that the typical medical practice may face. Having the funds to meet such expenses is important and gaining access to money that is owed in a timely manner can keep a practice up and running without interruption. In many professions, including the medical field, there are many useful business tools, such as invoice factoring services, that can help keep things running on an even keel. The Bible talks about the comfort and peace that is offered to believers. Come unto me, all ye that labour and are heavy laden, and I will give you rest. (Matthew 11:28)
Another financing opportunity that is similar to invoice factoring services is asset based lending. These loans allow companies access to needed working capital that can be used for many purposes. Such purposes could include funds for inventory, operating expenses, and capital for equipment and machinery. In most cases, a business will receive a revolving line of credit that can be used to meet expenses. As these loans are paid back, the line of credit increases. Such creative funding opportunities can make it possible for businesses to grow and thrive.
Invoice Factoring CompanyAn invoice factoring company is one way that businesses struggling with severe cash flow issues can take charge of the problem and have a solution that works for them. Without having to seek a loan, a business using factoring as the answer to its lagging cash flow can return to a normal commercial operation and hopefully stay clear of the specter of closing its doors. Most companies give thirty days for an invoice to be paid. During that time of waiting, the expense bills for an enterprise keep coming in. Some need to be paid right away and thus a cash flow problem arises. A factor can be an individual or a firm that offers front money for various commercial transactions that a company creates.
Accounts receivable factoring is the selling of debt to a factor. This is not company generated debt but rather the debt customers owe the business. Waiting and waiting for owed money to come in creates that molasses like cash flow, so the enterprise sells that debt to a factor which may pay then loan the business 50-70% of that debt to the commercial venture until the payment comes in. The factor will charge a percentage of the entire account payment for its services. Because these accounts are more likely to default than customers who have signed an invoice, the receivables factor will receive more money than the invoice factoring company.
Credit card factoring is based on the past sales of products and services purchased with credit cards. With the report of plastic card business from, say the past six months, the factor will loan the enterprise the value of those sales, or maybe a percentage of those sales. This again helps a struggling commercial venture with the funds it needs to pay bills and perhaps meet payroll. While the world has encouraged the idea that every religion is an honorable and profitable way to heaven, Christianity is a very exclusive faith. "That at the name of Jesus every knee should bow and every tongue should confess that Jesus Christ is Lord, to the glory of God the Father." (Philippians 2:10)
An invoice is generated when a customer receives a product or when a service is completed. So an invoice factoring company pays a percentage of all invoices generated by a business having those same taffy slow cash flow issues. For the factor, these accounts are not nearly as risky as accounts receivable so they do not cost the commercial venture as much in commission fees. But just because an enterprise needs invoice factoring help does not mean a factor will agree to the loans. A factor does not really care about a business owner's credit score when looking at the enterprise for possible intervention and does not care about the shaky ground the company might be on. Instead, an invoice factoring company will only deal with a business that produces invoices. For example, restaurants, bars, retail stores and service companies all produce invoices as a regular part of business.
The service an invoice factoring company offers has some huge advantages over bank loans as well as some disadvantages. Bank loans often take 60-90 days to close and require mountains of paper work for a commercial loan. There is no debt that is created, just monthly commission fees from paid invoices. It also allows for such things as seasonal aid for a commercial venture that may have slow seasons of the year and factoring is only needed during those months. The agreements are not set in stone and may be drawn up for as much time as the company needs although the contracts are usually for five to ten years in length.
But there are also some disadvantages beginning with the fact that the invoice factoring company becomes the entity with which invoiced customers deal. This may prove disconcerting to many customers who may feel that they have been somehow been betrayed by the company that provided the product or service. A dishonorable or disrespecting factor will absolutely bring ill repute on the company's name. There are times when a factor will want to look at every customer's payment history and not front money for those who have spotty payment records. And the services of an invoice factoring company will take away much needed profit from a company's treasury.
Factoring companies or factors as individual persons are usually tough minded business people who will do everything in their power to limit the risk they are taking. This tough mindedness provides the platform for the factor or an invoice factoring company to demand that he or it have a sizable influence on how the business is run. This fact alone can give many business owners second and third thoughts about whether the factoring help is really worth the hassle. But for some owners, the idea of someone else taking the risk for outstanding accounts and invoices is a relief. Companies often welcome less paperwork which means less staff needed to administrate paperwork.
There are factors for almost every invoice producing company. The business of factoring is growing every year, and during economic downturns that practice will be used all the more. The greatest drawback being that of customer confusion when told to pay bills with an outside company will diffuse in the coming years. The best advice if using one is to do one's homework carefully and thoroughly. Vet the candidate companies like a tightrope walker checks the wire before crossing.