3 Common Types of Invoice Factoring
Invoice factoring is a common way to fund and support growth for many businesses. If your business has account receivables then you are candidate for invoice factoring.
What Is Invoice Factoring?
If you are new to factoring, we are here to give you brief low-down on how it works. When you have invoices that take a long time to be paid from your clients, this can cause a problem with your cash flow. And when you have issues with your cash flow, you are in trouble. To make sure that you have the consistent cash flow you need to pay bills, make payroll on time, expand and buy equipment, etc., then invoice factoring becomes the logical solution.
It is widely popular for many reasons, including:
- It doesn’t require your business to have good credit (only your clients)
- It isn’t a loan, so you won’t have to worry about debt
- It is quick and easy
So how does it work? Basically, the invoice factoring company purchases your outstanding invoices up to 96%. The process is much quicker than a bank loan and gives you the cash flow you need right away. Once the client pays the invoice, the factoring company pays back the rest of the invoice sum, with the exception of a small factoring fee.
How To Choose The Right Invoice Factoring For You
So you know you need invoice factoring, but which type do you choose? We are here to help you decide the right type of invoice factoring for your specific business needs. Take a look below at 5 popular types of invoice factoring for funding and growing your business.
1. Non-recourse factoring
One of the most popular types of factoring is called non-recourse factoring. If you are new to the world of factoring, this is one of the most used types because it is essentially, risk-free. If your client defaults on the invoice by not paying it back, the factoring company won’t require you to buy back the invoice. Because this is more risky for the factoring company, the fees are typically higher than recourse factoring; however, you won’t have to worry about paying the invoice back.
2. Recourse factoring
Recourse factoring is another option that some business owners choose. If they know that their client is reliable and will pay their invoices, they may choose this option as it generally has less fees than non-recourse factoring because it isn’t as risky.
3. Spot factoring
If your company is in a jam and needs quick cash for an emergency, unexpected bill, or otherwise, spot factoring is a great solution. It is when you only take one invoice you’ve been waiting on and sell it to the factoring company. While many companies use factoring regularly, sometimes you may just need it once in awhile. Because it is quick, easy and convenient, invoice factoring is becoming the top way for financing business.
Whether you are looking to grow your company, work your way out of debt, or otherwise, invoice factoring is the best solution.