Invoice Factoring is the type of accounts receivable financing that changes current payable invoices into cash. In other words, this is a way of converting outstanding invoices into immediate cash. The invoices that can be converted should be within the 90-day payable period.
Invoice factoring companies take a direct risk with one’s creditors; so requestors should provide the invoices to those companies. In addition, the aspiring candidates should inform their creditors of their agreement with an invoice factor. If an agreement is reached, then the seller transfers all the invoices to the invoice factor.
One of the greatest benefits of invoice factoring is the fact that it offers immediate financial solutions to beneficiaries. If a company needs money to expand or pay its debtors, invoice factoring can help with debt relief. In addition, invoice factoring can be done online, making it easier and user-friendly. Finally, invoice factoring doesn’t have many conditions. This means that people with bad credit records are eligible.
How does credit factoring work?
Invoicing the Customer
The first step towards getting financing is by invoicing the customer. The customer should be able to pay the invoice within 90 days. If the customers are not able to pay within 90 days, the invoice factor wouldn’t be able to approve the request.
Know the conditions of an invoice factor
The conditions of each invoice factor may differ. As a client, it’s good for one to understand what they are entering into. Some invoice factors will pay less at first while others will pay more. In addition, the fees involved may differ.
Sell and Assign Invoices to an Invoice Factor
The next thing for one to do is to sell and assign invoices to the prospective invoice factor. The exercise starts with the client applying to sell and assign invoices to the company in question. The company will then assess the eligibility of the client. Once this has been done, the company will go ahead and assess the creditors involved. For the invoice factor to accept liability, the creditors should be established businesses with good payment track record. If the invoice factor is satisfied, the client and the company will sign an agreement.
Once all parties involved have agreed, the invoice factor will pay the client. The amount payable at the first phase is not full amount. Normally, the invoice factor may choose to pay about 80% of the invoices and the rest pay later. The remaining amount will be paid once the creditor has paid minus applicable fees.
The creditor pays
The final step is when the creditor pays the invoice factor. This step is followed by the invoice factor paying the client the remaining amount.
Invoice factoring is one of the best and easiest ways of getting money fast. It’s critical, though, to find a good invoice factoring company to trust. A good company can offer good services at affordable rates. What’s more, a good company will ensure that the client gets his money within a short period of time.