How to Factor Invoices
Growing companies often find themselves in need of better cash flow. One of the best financial tools for slow cash flow is to factor invoices. When you sell goods or services business to business the normal process is to give your customers payment terms. This can cause a 30 to 60 day delay in cash flow hitting your bank account. When you factor invoices you get the cash immediately when the invoices are generated and your factor waites for payment.
If you feel it makes sense to factor invoices then then you can move to the next step which would be completing an application for invoice factoring. The factor will also ask for the name and address of your customers so they can check published business credit. No contact will be made with your customers at this time as its simply a review of credit information from 3rd party business credit services. If the credit review is favorable then a rate quote will be issued so you can review and decide if the cost to factor invoices makes sense for your business model. Most factoring companies will also ask to review sample invoices with PO’s and a current accounts receivable aging report.
After your business has been approved and set up you will be notified you can begin submitting invoices for funding. You can email or upload copies of the invoices and your factor will confirm the invoices and then wire or ACH the funds to your existing checking account. The normal advance is typically 80% to 90% of the invoice total unless its transportation. That industry can get advances as high as 99%. Once payment is received by the factor you get the remaining funds not advanced (reserve) less the accrued factoring fee.
Once you begin using your invoice factor cash should become the strength of your business and you can use this quick cash to take advantage of opportunities it provides.
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As you can see getting set up to factor invoices is much easier and faster than trying to get bank financing. Most companies can qualify without business financials business owners don’t need to have good credit.
- – You will need customers with reasonable credit risk.
- – Factors will want to have confirmation your invoices are good.
- – Most factors want to know you don’t have your receivables pledged as collateral already. If you do you learn more about second position factoring.
- Generally serious legal problems can prevent factors from working with you, but it is a by situation call most of the time.
We offer one of the fastest factor invoices program available in the United States and Canada and we would welcome the chance to provide you a competitive quote. Take a minute and fill out our quote form to find out what rate we can offer your business.