What does factoring invoices really mean? To those who are new to the business world, factoring invoices means selling your invoices to a factoring company and they will advance you the money that you are supposed to collect from your customers. The factoring terms and conditions depend on the industry and among the financial companies, rates differ on the risk involved. Do not confuse factoring with bank loans as factoring is not considered as a debt and the company gains more flexibility with the steady cash flow.
There are a lot of advantages with factoring invoices both small and big companies. The main benefit with factoring is the quick return of the cash flow of the company as you get a percentage of your invoice usually in 24 hours rather than waiting for days before the customer pays. Another advantage is that financial institutions bases on the quality of your customer’s credit status rather than your own. This gives even the small business market to boost up their growth when used wisely and it is more beneficial than the regular bank loan. One more notable advantage is it’s easier and faster to get a factoring company to help you than a bank.
Factoring has gone a long way. And history proves that this is a successful business strategy. The earliest records of factoring dates back to the 1400s in England and it certainly evolved to what it is now. All kinds of businesses uses factoring.
There are two kinds of factoring that you can choose from, and that is recourse and non-recourse factoring. To put it simply, recourse means the business will need to buy back the invoices they sold to the factoring company when the customer does not pay. And for non-recourse, the factoring company takes all the responsibility of the credit risks.
One of the major reasons why businesses choose factoring is that they are given a piece of mind regarding payment. One of the services that they take advantage of is credit checking. Financial institutions can also screen potential customers and see if they have and bad credit history. Factoring is a sure investment that will surely put your business right on track.
Things that you need to consider when seeking a factoring partner are tenure, options that they are offering, and funding. Tenure has been always the biggest thing to consider as this proves their success. Options gives your company the flexibility to grow further. Lastly, they should be able to fund you as your business grows.