Choose the Best Factoring Company to Maintain a Steady Cash Flow
Posted by MayJim on December 6th, 2016
A factoring company is specialized in funding invoices from businesses with cash flow issues due to slow-paying clients. In order to completely understand the role of factoring companies, you should have a clear idea on what is factoring. Factoring basically involves a transaction through which a business sells its receivables or invoices, to a third party financial source called as a factor. The factor will then collect payment for those invoices from the customers of the business. Factoring, in some industries, is referred to as receivable financing. The major reason why companies prefer factoring is that they need to receive cash quickly for their receivables instead of waiting for thirty to sixty days that it often takes for a client to pay. Factoring enables companies to build up their cash flow quickly that make it effortless for them to pay employees, manage customer orders and deal with more business.
Most of the factoring companies’ service invoice factoring as their main product. Factors work with companies in majority of the industries. Few factors are generalists, whereas others personalize their offerings to serve particular industries like construction, medical or transportation. The kind of industries and businesses regularly use factoring includes trucking, freight brokers, consulting services, staffing agencies and so on. The most significant benefit of working with a factoring company is that you can improve your cash flow often immediately. You need to have to bother any more with slow paying invoices or accounts receivables. Rather, you can have cash-at-hand to pay off the expenses and move on to take up new deals and businesses.
The best factoring companies can be determined based on eligibility and features. It also includes the fees, rates and the process the factoring companies use. The eligibility requirements involve the number of days invoices can be overdue and also the maximum amount that a company can factor monthly. The best step involved in choosing the best factoring service for a business is checking out what kind of factoring you need actually. For example, you want a factoring that can pay for all your outstanding invoices upfront or if a partial payment is enough. You must also decide whether you prefer keeping receiving payment from clients or if you hand over the collections to factoring company.
Normally, a factor will pay between 70 and 90 percentages of your total value of invoice. The company will collect the payments of your customers and forward the remainder to you, excluding the service fee. Before confirming your invoices, the factor will perform due diligence to figure out the creditworthiness of your clients and whether they are capable of paying their invoices in a prompt manner. This is an important step, since the factor generally not work as a collection agency. In order to be qualified for most of the factoring services, your clients’ accounts must be in good standing. Few other factoring services also take into account other eligibility criteria like your annual revenue and your business reputation and client base.
