NYC Invoice Factoring Company
NYC Invoice factoring, also known as accounts receivable financing, refers to a financial solution where a company or business sells its due receivables to another agent referred to as an invoice factoring company which gives them cash right away. Thus instead of waiting for your customers to make their payments, you can enlist the services of an invoice factoring company to get the money you need to reinvest into your business, pay your employees, pay your bills or to ensure that your operating expenses are taken care of.
The Benefits of NYC Invoice Factoring include:
It is simple and straightforward.
It provides you with immediate cash.
Ensures that you do not accumulate debt.
It is based on your customer’s credit.
Ensures that you do not have to wait for your customers to make their payments.
The idea behind invoice factoring is to ensure that businesses never run out of cash they need to operate and grow. However, a factor is not a loan, as there is no debt involved. The money you get from the factoring company is going to be recovered when the customers eventually pay their invoices. Factoring is getting more popular as it provides an avenue to get money that does not involve traditional lending. Traditional lending only leads to increased debts as well as blocking out businesses that do not qualify from loans.
Steps Involved in NYC Invoice Factoring
Invoice factoring is a fairly simple process. It first starts with a business getting into an agreement with a factoring agency where the business agrees to create their invoices, but instead of sending them to their customers, it sends them to the factoring company. Once the factoring company has purchased the invoices, it will then proceed to deposit an advance on the total value of the invoices into the business’s account within 48 hours. The advance is usually around 90%. When the business’s customers have paid their dues, the factoring agency will then pay the remainder but cut a fee for their services.
1. Perform billing operations as usual.
2. Send those invoices to the factoring agency.
3. The factoring agency deposits a cash advance to your account.
4. Customers pay their invoices.
5. The factoring company sends you the balance minus their service fee.
Loans, Lines of Credit vs. NYC Invoice Factoring
Most businesses typically turn to banks whenever they are in urgent need of cash. While this is commonplace, it is not the most straightforward process out there as it might take weeks or months to get the loan approved and processed. Moreover, bank loans and other lines of credits increase your business’s liabilities. Thus, if you had a bad run and it affected your credit score, you will have a hard time accessing loans to grow your business. Furthermore, even when you qualify, there are limits to how much money you can get, which might make you unable to capitalize on a good business opportunity.
By using invoice factoring, however, you can get your request approved in less than 30 minutes. This is because when factoring companies are looking to approve your application, they only consider your customers’ credit, and not yours.
Agreements in NYC Invoice Factoring
The relationship between a business and an nyc invoice factoring agency is formed on the basis of a factoring agreement. This agreement contains clauses that govern:
The factoring fee.
The advance rate.
The volume of commitment.
The length of the agreement.
• The Length of the Agreement
The length of your contract with the factoring company depends on your program. The term of contracts ranges from a few months to multiple years. Thus, be sure to ask about this before signing up with an invoice factoring agency.
• The Volume Commitment
This means pledging a certain volume of invoices to your factoring company as a sign of good will. By doing this, you will stand to enjoy maximum advances at low rates, which allows you to optimize your cash needs.
• The Advance Rate
Most nyc invoice factoring companies will give you an advance that ranges from anywhere between 70 and 90 percent of the invoice amount. The amount you receive depends on factors such as the creditworthiness of your customers, their paying trends, and volume.
• The Factoring Fee
The fees that a factoring agency charges you depends on variables such as the volume commitment, invoice size, paying trends, your industry, and more. Also, some agencies might have a flat fee for their service, while others might have a flat fee in addition to charges for other services that they might be offering you. Be sure to read through your contract thoroughly so that you do not get into an agreement without being sure of what you are getting yourself into.
Types of Invoice Factoring Companies
There is a variety of factoring agencies; they include:
• The Factoring Generalist vs. the Factoring Specialist
As a result of accounts receivable financing making its way into multiple industries, factoring firms are now either generalists or specialists. Generalists are factoring firms that provide their services across multiple industries. As such, they have a diverse portfolio of clients with most of their customers being small businesses.
Factoring specialists are factoring firms who only offer their financial services to specific industries. Thus, the majority of their clients are small- to mid-sized businesses from one industry.
• Recourse vs. Nonrecourse Factoring Firms
Another way of classifying factoring firms is by categorizing them as recourse or non-recourse. Nevertheless, the majority of factoring companies utilize recourse factoring.
Recourse factoring allows these firms to sell the invoices back to you if your customers do not make their payments within a specified period in your agreement. This period is typically about 90 days.
Nonrecourse factoring, therefore, implies that the factoring company is willing to take the risk that the invoices might not get paid and still give you the cash. Nonetheless, due to the amount of risk involved, nonrecourse factoring firms are more stringent in their verification methods and will typically charge you higher fees. However, even if a firm advertises itself as nonrecourse, be sure to go through the contract carefully because they may have clauses stating when your invoices can be exempt