Invoice Factoring
What Invoice Factoring is and is not Invoice factoring is a very popular form of business financing, perhaps one of the most common. Various forms of invoice factoring have been used for thousands of years from ancient kings to multi national corporations. An invoice is a documentation of a purchase. For many large purchases the cost cannot be covered immediately. When this happens the invoice is sent to the accounts receivable department. Your invoice at this point is how much a customer, client or company owes you.
When a company wants quick financing they can choose to leverage their debt by selling their invoices. A financial company that’s offers invoice factoring is buying your debt at interest for money right here right now. Instead of applying for a loan or finding investors a company can choose to sell its debt for quick cash, this is called invoice funding. When your financial company buys your debts there are no guarantees they will ever be able to collect, but this works both ways. There are no guarantees that your customers will be treated with respect and courtesy by the financial company. What happens to my customers and invoices?Most companies understand the importance of how they collect the purchased invoices. Any financial company that offers invoice factoring services will likely work to please your customers as it ensures future business from you, their customer. When choosing a financial company it is prudent to understand how they collect and how they will treat your customers. The invoices have changed hands from your accounts receivable department to you invoice factoring company. From here your financial company either collects or doesn’t. If a customer is being difficult and will not pay up the financial companies usually opt to sell the invoices once again, usually to a debt collection agency. This is generally the last stop for your debt however there are there are circumstances in which the debt collectors threaten legal action, and take the case to court. Why do I want Invoice Factoring?Invoice factoring is the preferred method of funding for a few reasons. For one obtaining a bank loan is difficult and tedious. Often times a business must go through rigorous credit and sales checks and then once approved have to wait up to a month sometimes even more for their loan to come through. When a business needs quick funding to stay afloat or quick funding for a rare opportunity to expand a bank loan simply will not do. Many businesses choose to seek investors for the survival of their business. While the background checks are far less rigorous and the money sometimes quicker than a bank loan, investing isn’t always the best option. Most investors are looking to gain significantly off of their investment. This means that when choosing an investor you as a business may giving up earning potential in the future or even lack of control over the company. If this is suitable for your situation it may be preferable however most do not wish to go this route unless necessary.
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