What Are The Features Of Invoice Factoring?
If you are a businessperson and sell goods or services then you must have heard about the concept of invoice factoring. This is a system through which a company sells its account receivable or the invoice to another finance company at a much discounted rate.
A proper example will make the whole concept easier for you. For instance, say that you have sold goods or services worth $10000 to a customer and the customer promises you to pay off the amount within 90 days of payment schedule.
But, due to some reason the customer could not pay back the amount to you within the specified time. Here, if you want to increase the cash flow then you can get help from the invoice factoring. You can sell your unpaid invoice to some finance company that we call "factor".
With the help of these factors you can get back around 90% of your due amount within 24 hours. Here, the factor will go through the customer details and will give you 90% of the amount without taking much of your time, and in just 24 hours the money will be transferred to your account.
Now after 90 days the factor will get back the entire amount from the customer and so it will return you the rest 10% of the invoice amount. So, here you can realize the complete amount in just 90 days, but the best part is that you actually realize the maximum amount within 24 hours.
Now you must be thinking that what the factor gets in return from this service? Well, they will charge you a certain percentage as their service fees. After 90 days you won't get the entire 10% of the amount, rather here you will receive an amount that subtracts the factor service charges, that is the amount you will get is 10000-(10000*n%) here n% is the service amount.
Some of the advantages that you will receive from factoring the invoice are firstly with this service you will get back most of the money and can utilize it in some other field. Next, this service helps you to maintain the continued cash flow.
With this service you don't have to waste your time collecting the money from the customer. It creates no situation for debts, and helps to maintain a proper credit rating of the company and many more. So with an invoice factoring you can raise your company fund as well as help it to grow.