It’s most difficult for business owners and managers how to get their unpaid customers, who are late 30 to 60 days. Therefore, big companies and business can afford it, but on the other side, small size company can’t afford it. This is true, waiting for long period of time from client, may create a problem for company how to meet the deadlines and difficult to pay company’s bill. It can be frustrating for those companies or business which they have large number of orders that fulfil them very crucial for companies because of its tied up in unpaid invoices.
Have you listened before this, what is invoice factoring ? Its mean account receivable factoring, is a financial tool that allows small business owners to capitalize on the power of their slow paying invoices. Invoice factoring allows you to turn your invoices in immediate cash. In addition, stand your business to run your business operations. Therefore, it is not consider well-known fact, those invoices that from authentic credit worthy clients are brilliant collateral, specifically for factoring companies. Therefore, mostly bank didn’t accept invoice, but on the other hand, factoring companies are willing to giving you finance based incentives. This way makes the business vehicle small and medium size business and knowledge based companies and its employee intensive firms.
We suppose that you sell your services to company x and company y. when you provide services, you can invoice them. In the mean while you send some copies of invoices to factoring company, who buys them happily and provide you an advance payment for these services.
Until customer not paid factoring companies wait for these customers, and remaining funds resend to the companies. This process of factoring may repeated repeatedly until the entire customer paid to them.
Invoice factoring process complete in two-instalment process. The first instalment may be consisting on advanced and is paid to the business as you submitted the invoices. Advance may be varying company to company, so it can be 60% to 90% of the gross values of the invoices. In other words, you can say average advance up-to 75 %.
The other remaining instalment is called rebate, is remitted to you once the invoice is paid. In addition, factoring fee deduct from the rebate.
The cost of a factoring transaction is determined by three criteria. First, the credit worthiness of your customers. Second, the length of time that your invoices take to be paid. Lastly, the monthly factored volume.
Cost of factoring transaction determined by the three criteria. Such as credit worthiness of your customers, length of time that your invoices take to get paid. And the monthly factored volume. Your cost usually called a discount, which can be low as 1% or as high as 12% per transaction depending on how you fit the previous criteria. If you your business growing quickly, then invoice factoring will be suitable for you. You are earning reasonable profit from the business. Those companies with 20% margin could be well with account receivable factoring.
Learn more at http://k1factoring.com/what-is-factoring.aspx