Factoring financing could be the answer you’ve been seeking for if you’re a small business owner trying to find a quick and versatile approach to increase your cash flow.
Finance factoring: what is it?
Invoice factoring, also known as accounts receivable financing, is a kind of financing in which a business sells its outstanding invoices to an outside entity (the factoring company) in exchange for a lump sum of cash.
How does the process of factoring finance work?
The following are the typical steps in a factoring transaction:
A factoring firm is a third party that purchases your company’s outstanding bills from you at a discount (often 70-90% of the invoice amount) in exchange for fast payment.
It is the responsibility of the factoring business to pursue payment from the clients whose invoices you sold to them.
After receiving payment from your consumers, the factoring company will provide you the remaining balance, less their costs.
So, why exactly do you need to factor funding, and what are the advantages?
Factoring funding provides numerous advantages to small firms, such as:
Better cash flow is a direct result of the fact that invoices that have not yet been paid can be converted into immediate cash through factoring finance.
Without the requirement for security or a lengthy application process, factoring financing can provide capital more quickly and with greater flexibility than standard bank loans.
Accounting tasks are contracted out of management of accounts receivable: a factoring company can handle the collection of payments from clients when you sell them your outstanding invoices.
Enhanced ability to make purchases by taking advantage of early payment discounts and negotiating more favorable terms with suppliers thanks to enhanced cash flow.
Are you wondering if factoring financing is the best option for your company?
Companies with bad credit ratings that need cash fast may benefit greatly from factoring funding. When deciding if factoring financing is best for your company, you should research the costs and discount rates involved.
Talk to one of our financial specialists at The Mayster Group to see if factoring financing is right for your company.