What is a factoring company?
If your business is struggling with cash flow problems you can assess different forms of another lending. Invoice factoring is a distinctive service that is different from another cash-flow financing. Here are the common questions about factoring companies.
What does it do?
The factoring companies are trained for invoice factoring. And purchasing outstanding invoices from businesses that have slow-paying customers. And also looking to boost the cash flow. It allows the business to access cash after issuing an invoice. Rather than waiting for 30 to 90 days for the customer to pay. And once they buy a business’ invoices they collect them from the business customers.
The factoring companies are not suitable for everyone. Many focus on specific industries such as staffing, trucking, and construction. Other banks are offering factoring services. But most of the factoring companies are liberated providers.
How does it earn money?
The business factors their invoices. The factoring company advances up to 90% of the invoice value to the business. And when the factor collects the full amount of payment from the end customer. They will return the remaining 10% to the business less the factoring fee. The fee is ranging from 1% and 5% depending on many factors such as the age of the invoice.
What is the difference between the traditional lender?
The factoring is not a loan. But it is an acquired asset such as the invoices. You do not experience a debt. Your agreement and the use of the line don’t impact your credit side.
How do they calculate the fees?
The fees are ranging from 1% to 5%. These are calculated based on the elements such as:
Amount of money being factored
The economies of scale are also at play for factoring companies. Most of the costs are to establish and maintain a factoring relationship that is fixed. This means the more the factoring client uses its line, the lower the rates will be.
Length of your invoice terms
The factoring companies are charging higher rates. Those invoices that have longer payment terms for example 60 to 90 days. The reason is they are advancing cash to your business for a longer period of time. And that time has a value to the factor.
Credit Quality of your customers
Your customers are the ones who will pay the invoices you are factoring in. Hence the factoring company will want to make certain that your customers are good for the money. Having greater credit will result in lower factoring fees.
Choosing a factoring company
factoring texas does not do things exactly the same. Factoring has specialized in different industries, languages, and terms. Comparing the differences of factoring companies is difficult.
By finding a factoring company you can ask them these type of questions first:
- What are the terms, fees, and funding limits?
- How long does the business run?
- How persistent and quick your invoices will be funded and payments applied?
- How will you interact with your customers?
- Where are the funds coming from?