What Type of Invoice Factoring Services To Look For
Factoring companies can help numerous industries that need quick, easy and reliable financing. If you are interested in what factoring is all about, take a look below at several different types of factoring to determine which is best for your business.
There are several types of invoice factoring, yet they all have the same concept (excluding credit card factoring). Typically, with invoice factoring, the factoring company will purchase your outstanding invoices so that you can receive the cash you need right away. Generally, the amount cash advance you will receive is up to 96% of the invoice. This is an advantage, as you no longer have to worry about collections and can use the cash however you need to. When the client pays the factoring company they will give you the remaining amount, excluding a small fee. This is highly beneficial for businesses that rely on a consistent cash flow to continue business as usual and expand.
Non-recourse factoring is one of the most popular types of factoring. This is because it is essential a risk-free way of financing your business. When you sell your invoice to the factoring company, the advance they give to you is yours to use, as you need. Because some clients do not pay the factoring company the invoices, it is a risky transaction. Yet, with non-recourse factoring, you won’t have to pay the factoring company back. This is what makes it a more popular option. Since it is a more risky option for the factoring company, the rates will generally be more than recourse factoring; however, you won’t have to worry about paying back the advance in case your client defaults on the invoice. Depending on your company’s financial situation, either type of factoring can be beneficial to you.
Payroll Funding with invoice factoring
Often, when a business experiences a slower season and clients take months to pay invoices, there is a major lull in the cash flow. If you don’t have a steady cash flow to rely on this can cause an array of problems, including not making payroll on time. If your business is experiencing cash flow issues, payroll funding through invoice factoring is the best solution for quick, reliable cash.
Small Business Factoring
One of the best ways to support your business’ growth is through small business factoring. Because bank loans are hard to come by and may affect your credit, many business owners turn to factoring as it is risk-free and doesn’t put you in debt. Often, it can actually help you work your way out of debt and gain better credit.
Another helpful service is called spot factoring. This is convenient for business owners who wish to only factor one particular invoice and not set up continuous factoring. This will give you the cash you need to operate smoothly whether you need the money to make payroll, buy equipment or supplies, or otherwise.
Credit Card Factoring
Credit card factoring differs a little than the other types of factoring. It is still a cash advance like the others, yet it’s a cash advance on your future credit card sales rather than selling invoices. You will pay back the advance over a certain period of time as determined by a percentage of your credit card sales.