Manufacturer Invoice factoring acts as a type of debt financing and financial accounts receivable financing used to convert the outstanding invoices into immediate cash. The factoring invoices should be due within 90 days. Factoring provides business owners with a chance to receive working capital immediately instead of having to wait for the payments from the customers. Invoice factoring helps the business to maintain its daily operating expenses and meet the payroll.
The main benefits of Manufacturer Invoice Factoring Include
• Simple transaction
• Provision of immediate cash
• The cash is based on buyer’s credits
• It does not add to current debts
• Eliminating the waiting period on the consumer’s payments.
The invoice factoring central core is providing companies with the much needed immediate cash to facilitate on daily operation and growth expansion. Additionally, factoring does not act like a loan hence there is no extra burden to the business owner. The cash received comes from the payment and credit history of your purchaser and not from the assets of the company. Invoice factoring is beneficial for companies that cannot qualify nor have access to traditional lending. Also, it’s ideal for business owners who do not want an increased debt burden.
Steps to Manufacturer Invoice Factoring
The process of receivable factoring is straightforward and simple. And the following steps are applicable
1. Making the sales and billing
2. Sending of invoice
3. Receiving cash
4. Customer payment
5. Receiving the remaining balance less relevant fee
The business enters into a written agreement with it’s a given factoring company, and it makes its sales and drafts the customer invoice. It sends the invoice to the factoring company instead of the customer. The factoring company then purchase the invoice and make an advance payment according to the invoice amount to the company account within 24 hours. The advance amount is usually a percentage of the total invoice amount with most factoring companies providing to a tune of 90%. The buyer makes the payment directly to the factoring company, and you receive the remaining balance less applicable charges.
Understanding Manufacturer Invoice Factoring Vs. Manufacturer Lines of Credit and Loans
Most businesses turn to banks for their working capital, a cumbersome and stressing process with long steps that take weeks or even months to receive the loan. Moreover, a line of credit or banks loan creates a vast debts burden on the company balance sheet. Most of the money lending institutions look at the company assets to build a line of credit. Additionally most the companies suffer stagnation due to lack of working credits since they cannot have access to credit using their business assets.
But Invoice factoring has made life easy for business since the application process is quick and straightforward. Get your working capital approved may take only 15 minutes. The approval is practically based on business sales. Most of the invoice factoring companies support credits lines of even $20,000,000
The Manufacturer Invoice Factoring Agreement
A strong foundation of any business agreement needs a simple and straightforward contract. In this case, the agreement drafted is between the factoring company and the client. And it should include the following elements
• The time frame of the factoring agreement
The contract terms vary depending on each customer need. The timeframe may range from three months, six months and even years. Some factoring companies like TCI Business capital do provide their clients with monthly contracts to cater for their immediate needs. Before you sign the factoring agreement ensure you understand the time frame to avoid future court cases.
• Factoring volume of commitment
The volume commitment means knowing the number of involves that converting into cash and the lowest rate applicable on each invoice. Once a company commits to factor specific invoice amounts and volumes, they have the power to negotiate for the best factoring advance.
• The advance percentage
The advance percentage outlines the amount you ought to receive on the given invoice volumes and amounts. Most factoring companies provide from70% to 95% of the given invoice. Different valuables that help to set the given percentage includes payment trends, customer creditworthiness, and invoice volumes.
• The factoring fee
The invoice factoring fee or charges vary from each company with some elements playing a significant role on the discounts received. The factors include customers paying trend, the company line of business and the size and volume of invoices. Some of the factoring companies do charge a flat fee while others use percentage rate and others base the rate according to the support and administrative services provided.
Tip: Always read the more delicate details and understand the factoring fee calculations.
Types of Factoring Companies
North America has many invoice factoring companies. And choosing the best factoring company helps to create a healthy and prosperous factoring relationship. A financially strong factoring company needs to cater for your business cash requirements within a short time while adding value to your future relationship.
Factoring Generalist vs. Factoring Specialist
The need for quick cash has enabled most companies to seek help from factoring companies. And this has categorized the companies to either generalist or specialists invoice factoring corporations.
An invoice factoring company that offers its financing services to multiple industries goes by the name factoring generalists. Most of the factoring generalist’s client’s portfolio spread over several sectors with most customers being from smaller companies.
The specialists invoice factoring companies cater to the specific industry with the majority of their clients being from a particular line of business like trucking, oil, and gas among others. The client’s portfolio for specialist companies ranges from small to medium-sized companies.
Nonrecourse and Recourse Manufacturer Invoice Factoring Companies
Recourse factoring companies are the most common in the market, and they can resell the invoice back to you in case of non-payment from the customers within the given timeframe. Typically the agreed deadline is outlined on the contract.
Conversely, the non-recourse factoring companies are not too common since the risk involved is high. A non-recourse company takes all the credit risk in case a customer refuses to pay on the agreed timeframe. The non-recourse factoring companies do charge a higher fee than the recourse factoring companies and they have stringent credit reviews.