When you run a business that supplies material to customers on credit terms ranging from 30 to 90 days, you could be spending sleepless nights wondering whether there was a way to get your money immediately without having to wait for the due date to arrive. Well, now you can get your money immediately against your credit invoice, albeit at a small price.
This service is provided by Invoice Factoring Companies, which buy your credit invoices and transfer almost the entire amount into your account within 24 to 48 hours if you so desire. They might retain a small amount until the payment is cleared by your client on the due date. They will also deduct their factoring fee, which could be from 1% to 5% of the invoice amount. A variety of factors such as the credit period mentioned in the credit invoice, the credit standing of your clients as decided by the factoring company and the total value of business that you bring to the factoring company will determine the percentage of the fee.
They will also offer you a choice between 'recourse' and 'non-recourse' financing in which you can either accept back those invoices, which your clients fail to pay [recourse] or you could shift the entire risk of non-paying clients to the factoring company [non-recourse]. However, the charges for 'recourse' will be less than 'non-recourse' due to the difference in the level of risk in ferreting out the payment from your clients.
If you so desire, then the invoice factoring company could also take over the entire collection process of your company. They could follow up with your clients and send staff for collection on the due date. However, this step should be considered only if you feel that your clients will accept another company collecting your payments from them. You will need to convince your clients before you go in for such an arrangement. On the other hand, you will also need to check that the factoring company staff are diplomatic and polite while they recover the payments from your clients. You will also need to monitor the situation continuously to deflate any tensions arising out of late payments between your clients and the factoring company. All said and done, this service could prove to be a boon for your business. You will now be able to concentrate more on increasing sales rather than ruining your peace of mind running after payments. You can dismantle your collection department and re-direct that staff to other departments, thus saving money. This works particularly well with Freight Companies that use Truck Factoring.
An efficient invoice factoring company can thus unclog your cash flow and be very beneficial for your business, especially when you have credit clients within your customer base. You may now cater to larger orders, pay off your expenses and even implement an expansion plan with this money. In short, your business can now grow without any capital constraints. The services offered by these factoring companies are also much more as compared to any bank loan, which basically is just a fixed amount of money to be paid back within a fixed time.
Thus, there is a lot that a good invoice factoring company can do for you. But care needs to be taken to ensure that their services are as good as what is promised and your profit margins too are able to absorb the additional stress put on them. If you feel that you really do need the services of a factoring company then go for it.
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