If you are selling your customers goods on a credit basis, then Invoice Factoring is a better choice in case you want ready cash to meet your day-to-day expenses and also want money for meeting your future needs. Traditionally, bank loans were the only choice if one were to arrange for immediate capital, but the advent of invoice factoring has made arranging for cash into an easy affair.
When you make a credit invoice to your customers, you could normally be specifying the number of days for which you have extended the credit period to those customers. You will then have to wait for those invoices to mature. You will thus get your money only on the due date mentioned on the invoice and that too, if your clients pay you on time. Invoice factoring eliminates this problem by 'buying' your credit invoices off your hands and then collecting the payment on the due date from your customers. Against this purchase, these factoring companies arrange to pay you almost the entire amount of that invoice within 24 to 48 hours. Against this service, the factoring company will charge a factoring fee, which depends on the number of credit days you have extended to your customers, the credit worthiness of your customers as decided by the factoring company as well that the total business that you can drum up for your factoring company. This fee normally ranges from 1% to 5% per month depending on the above factors.
Invoice factoring has many advantages over a traditional loan. First, if you have just started your business, then availing of a loan could be very difficult since banks usually demand the business financial statements of the previous 3 years. You will also need to arrange for collateral to be attached against that loan and you might also need to provide for a guarantor for that loan. The amount of loan that you require will also have to be specified first and you might not able to get an additional loan over and above the original loan until the loan amount has been cleared. You will still have to pay interest on the loan and be careful not to miss any of the repayment installments.
Compared to the above, all you need to do to avail of invoice factoring services is to contact a reliable service provider and show him the invoice details of all your credit customers. If your customers are financially healthy in the eyes of the factoring company then you could get started on a very reasonable factoring fee rate. You might also not have to arrange for any collateral and you can avail of their services even if you have just started your business. The question of specifying the loan amount would not arise since you will get the invoice amount only after submitting your invoices to the factoring company. This means that there will not be any fixed amount but rather this system will grow as your business grows in size.
Therefore, compared to a bank loan, invoice factoring is much more accommodating and is easier to arrange. It has the potential to increase along with the increased needs of your company. Thus if you require immediate cash to run your business, check out the features offered by invoice Factoring Company and lock for one which charges a reasonable fee along with giving you prompt payments.
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