Wholesaler Invoice Factoring
In many cases, a customer will not pay for a good or service right away. Instead, they will have up to 90 days from the time that they receive a good or service to make a payment. This could result in a cash flow problem for a small business or a company of any size. Let’s take a look at how invoice factoring companies obtain the cash that they need in a timely manner.
What Is Invoice Factoring For Wholesalers?
Invoice factoring for wholesalers takes accounts receivable and turns them into cash. The factoring company will purchase the account receivable and make an initial deposit into a company’s business bank account. When the customer is ready to pay, it will send money to the factoring company instead of to the vendor. The advance provider will then pass the rest of the money minus a service fee to the company that provided the actual good or service.
What Are the Benefits of Invoice Factoring For Wholesalers?
Invoice factoring could be beneficial to a company because it allows it to gain access to capital without having to take on debt. Another benefit to invoice factoring is an ability to get cash within 24 hours of a factoring company buying an invoice. This eliminates the need to wait for 30, 60 or 90 days after a transaction is completed for payment. Finally, this can be an ideal way to access cash because the advance is based on a customer’s credit score. Therefore, companies may be able to participate in invoice factoring even if they have poor credit.
What Goes Into Creating a Wholesaler Factoring Advance Agreement?
There are many variables that need to be considered before determining if factoring is in your company’s best interest. In many cases, you will need to commit to having a certain number of receivables purchased by the factoring company. There may also be a minimum amount of time during which a factoring company has the right to purchase invoices.
Invoice factoring contracts can be in effect for as little as three months or as long as three years. There may be even be monthly contracts available to help meet a company’s needs. The amount that your business will receive is between 70 and 90 percent of the invoice’s value. Therefore, a $10,000 invoice could be worth up to $9,000 after fees are deducted.
Can Invoices Be Sold Back to My Business?
It is not uncommon for an advance to be given by a recourse factoring company. What this means is that the advance provider has the right to sell the invoice back to your business if the customer doesn’t make a payment in a timely manner. This typically means that payment wasn’t made 90 or more days after a product or service was delivered.
If a company labels its loans as non-recourse, it may not be able to sell the invoice back or take other steps to collect if your client doesn’t pay. However, it is important to know that many invoice factoring providers will say an advance is non-recourse but have several exceptions to that policy.
The Difference Between Wholesaler Invoice Factoring and a Bank Loan
Companies do have the right to seek funding from a bank or other financial institution to meet their needs. However, it can be difficult for a small business to get the financing it seeks through traditional means. It can also take several weeks or months to get a loan from a bank or credit union.
If your business does get approved for a loan, it may not be for the amount needed to hire employees or otherwise grow the company. Furthermore, it may be necessary to provide collateral such as a personal home or a valuable business asset. If the loan isn’t repaid on time, you could risk losing that asset. With invoice factoring, the unpaid accounts receivable act as a form of collateral.
When your business needs cash quickly, it may be a good idea to talk to an invoice factoring company. Since it is not a loan, there is no need to worry about a credit check or accumulating debt that your company may not be ready to handle. Instead, you get the funding that your business needs in a matter of hours without a lot of stress or hassle