What Is Invoice Factoring?
Invoice factoring is a debtor financing option that allows you to turn your unpaid invoices into instant cash. It is a fast and convenient option, but can be expensive. It’s important to understand the cost of borrowing before you commit.
How Does Invoice Factoring Work?
Invoice factoring is you selling your invoices to an invoice factoring company at a discount. With invoice factoring, you are paid immediately. So, invoice factoring is a great way to get quick cash when your customers are slow to pay you. It can allow you to solve cash flow problems quickly instead of relying on your customers to pay you soon.
If you want invoice factoring services, the first thing you need to do is find an invoice factoring company. Invoice factoring companies can be found online easily. Comparing invoice factoring rates is also simple because invoice factoring companies can be compared through a few quick searches. You can use our table to compare invoice factoring companies.
How To Choose An Invoice Factoring Company?
The first thing you need to look for in invoice factoring companies are their fees. All invoice factoring companies will charge a fee for their advance. The fee will vary depending on how long it takes your customer to pay you. You can get an invoice factored immediately for a fee of just a few percentage points if your customer pays you within the first month.
Unfortunately, some invoice factoring companies carry other hidden fees as well. One example would be a hidden charge for a credit pull. This hidden fee can add up if you factor many invoices with that company.
Another important figure is the amount of the invoice that the invoice factoring company can pay upfront. Most good invoice financing companies can send 90% or more of the invoice upfront.
Invoice Factoring vs Invoice Financing
Invoice financing is a type of loan that is meant to cover the cost of an unpaid invoice. It is similar to other types of installment loans.
Invoice factoring isn’t technically a type of loan. It’s just an advance with a specific repayment process. Invoice factoring doesn’t involve interest or installment repayments.
How Much Does Factoring Cost?
This depends on the invoice factoring company you go to. Most invoice factors should only charge about 2% for the first 30 days then about 0.5% more every 10 days until the invoice is paid off.
Are There Different Kinds of Factoring?
Yes, there are a few different kinds of invoice factoring. The difference between them is how much freedom you get in choosing which invoices to factor.
Selective factoring allows you to select which invoices you want to factor.
Spot/single factoring allows you to simply factor one invoice. This is a good option when you just need to come up with the funds for one payment.
Whole turnover is a type of invoice financing that is meant for long-term arrangements. Whole turnover requires you to factor every single invoice for an agreed upon amount of time.
What Type Of Businesses Is Invoice Factoring Right For?
Invoice factoring is good for any business that has cash flow problems due to delayed invoice payments. This applies to a wide variety of businesses that make high ticket sales.
You can take advantage of invoice factoring no matter what kind of business you’re running. However, heavy reliance on a fast cash flow is the surest sign that invoice factoring is a good option for you.