Your business needs cash to run. Sometimes, you can end up with a cash flow issue when clients forget to pay their invoices. While you can apply for a loan at your bank, it can take weeks or months to get approved. You need an immediate solution to your cash flow problem. For many businesses, invoice factoring is a useful option.
Factor invoicing basically involves getting an advance on your future invoices. The factoring company agrees to advance cash to you right now. In return, they recover that advance from your invoices. Anything that is left after repaying the invoice and taking a small fee is returned to you. In essence, you are pre-paying yourself for future invoices. It takes less than 24 hours to get this funding. As soon as the money is in your account, you can use it for bills, payroll costs, operating expenses or anything else your company needs.
The Advantages of Long Island Invoice Factoring
Businesses need access to funding if they want to keep operating. Invoice factoring is one way to get cash right away. You do not have to wait for a bank to tediously sort through your paperwork, review your finances, approve the loan and finally give you the money. Plus, invoice factoring is not a debt or a loan. It is a pre-payment for your invoices, so it does not go onto your balance sheet as a debt.
Quick cash: This is one of the top reasons why businesses use this funding style. They need immediate cash. A bank could take weeks or months to give you a line of credit. With invoice factoring, the cash is available right away.
No wait times: If your business is struggling to cover payroll costs, you cannot afford to wait a few weeks for your loan to get approved. You also cannot afford to wait for a client to finally pay their invoice. Invoice factoring lets you get added financial flexibility without any wait time.
Easy transactions: It takes just 15 minutes to apply and get approved. Once you are approved, the cash is in your bank account in as little as 24 hours.
Not a debt: One major advantage of this funding style is that it will not add a new debt to your balance sheet. It is a pre-payment for your future earnings and not a loan.
Credit scores are not an issue: New businesses may not have a long enough credit history to get a loan. Other companies struggle to get funding because they have a bad credit score. For both types of companies, invoice factoring is an alternative option. You are given funding based entirely on your invoices and your customers’ creditworthiness.
How Long Island Invoice Factoring Works
The first step in the process is to contact a factoring company. Keep doing your normal work. After you are approved, you sign an agreement with the company. This agreement details the timeline for repayment, the amount of the advance and similar topics. Then, the factoring company collects invoice payments for you. You immediately get sent the cash you need.
As the invoice payments roll in, the company gets repaid for the advance and takes a small fee. Any extra amount is returned to you. In most cases, you can get a cash advance of about 90 percent of your invoice total.
How Does This Compare to a Bank Loan?
If you have the time, credit score and business history to qualify for a bank loan, then go for it. Every kind of financing has advantages and disadvantages. You can get a line of credit or a loan from your bank, but it can take weeks or months to get approved. Normally, they will require a high credit score as well. If you do not have the time or the credit score, then a bank loan may be the wrong choice for your business.
You should also remember that a loan or credit line will limit how much cash you can get. Invoice factoring lets you get $50,000 to $20,000,000 in funding right away. The entire process takes just 15 minutes.
What Is in the Agreement?
Your factoring agreement will depend on the provider and your company’s features. It always includes the length of service, which can range from three months to multiple years. This agreement will include a volume commitment for the number of invoices you provide. If you have a higher volume, you can lock in a lower rate and a larger advance.
The agreement will cover the factoring discount. This is the fees charged for your advance. In addition, the agreement will discuss your advance rate. The advance rate is normally 70 percent or higher. It is based on the invoice volume, your customers’ creditworthiness and other factors.
What Are the Types of Factoring Companies?
A recourse company offers to sell the invoice back to your company if the payments do not arrive. While a non-recourse company writes off unpaid invoices as a loss, they also charge a higher fee for this service. You can also use a factoring generalist or specialist. A specialist works with one main industry, but a generalist will have clients from many types of companies and industries.