Seeking out invoice factoring services is a great means of looking to generate immediate cash flow for your business. Rather than waiting out the long periods before customers pay you, factoring services will buy the invoices from you and advance the majority of the face value to you instead.
Just like with other services for businesses, there are different ways that this kind of service works, which makes it very important to carefully examine each kind before deciding which one will work the best for your company and your situation. It is even more important to check how much you are going to be advanced on the front end, what the fees are and what happens if the customer is slow to pay an invoice that has been factored.
Because the purpose is to generate cash flow now instead of later, you’ll want to look for the company with the highest advance per batch. Most service will give you between 80 and 90 percent of the face value on each invoice per batch. While this means you will get less in payments later, a higher percentage means more money to use now for expenses you need to pay off. This helps out with late fees or other charges you could incur.
Aside from that, check what the fees will be. Most have a fixed percentage that varies among each company, though it will usually be between 4 and 6 percent per batch. The best company will come with a lower factoring fee while offering a higher advance up front, which lets you reap the most benefits from using this kind of technique to gain cash flow.
Another thing to look at is what exactly will happen when the customer is too slow to pay an invoice. Some invoice factoring services are willing to work with you to collect though some may want to deal with it themselves by using their own resources and their own methods. These procedures might include simple reminders to pay off their bills or something as drastic as threatening demands for payment or else they will take further action.
Depending on the relationship you have with your customers, this can have a very negative impact on them, especially if you have a loyal customer who is offended by the attack after simply overlooking a bill that was due. Make sure you ask about what their collection letters are like before you commit to them. This helps get an idea of how agents will handle your clients when they need to collect.
Though invoice factoring is often a great way to get the most effective cash flow, it, like many other solutions, may not be right for your situation. Before you consider entering an agreement with a company for factoring invoices, think about what your alternatives are. These include getting a business loan or getting a business line of credit. Ultimately, getting the right decision is crucial to remaining in business with a good reputation for your customers.
Business professor, Byron Crawford, recommends Express Business Finance 2477 Glenwood School Drive Burlington, ON L7R 3R9 (905) 639-9711 when your business is in between payments and needs to order more supplies.