What is Invoice Factoring?
Invoice factoring is an alternative financing solution to getting a loan. Because it is much quicker and easier than getting a loan it is preferred by many businesses. Essentially, invoice factoring is when a factoring company buys your current invoices at up to 96 percent, so that you receive the money you need when you need it. Once your client pays them back, they will give you the rest of the sum, minus a small factoring fee.
There are several types of invoice factoring. Today, we are going to take a look at each type, so that you can determine which type of factoring is the best option for your business. The benefits of each type of factoring are all the same: fast and easy process, quick cash, and no debt, among many other benefits.
While they are all similar in this way, they each have slight variations that are good for different businesses. Below are 6 different types of invoice factoring that can help your business with increasing its cash flow, growing and expanding, meeting payroll and much more.
1. Non-recourse Invoice Factoring
This type of factoring is very popular, as it offers a protection from clients who default on their loan. If your business isn’t in a financial place to buy back the invoice from the factoring company if your client can’t pay the invoice back, then non-recourse factoring is the best solution for you.
2. Recourse Invoice Factoring
While this type of factoring doesn’t have the protection that non-recourse factoring has, it is a convenient option for those who wish to receive a lower cost-factoring fee. Because of the high risk that non-recourse factoring take, the rates will naturally cost more, while recourse factoring are less. If your company is in a position where you can take that chance, then this type of factoring may be for you. Speaking with factoring professionals will also help you determine the best type for your personal financial situation.
3. Credit Card Invoice Factoring
Credit card factoring is a little different than the typical invoice factoring. Rather than the factoring company purchasing your invoices, it is a cash advance transaction. This is a good way for your company to get an advance of future credit card sales without having to pay a loan back.
4. Spot Invoice Factoring
While numerous businesses use factoring as a part of their daily, weekly or monthly means of gaining the funds they need to operate, some businesses need to simply get funds from one invoice. If you are in this situation where you have one client that takes too long to pay the invoice back and you need the cash right away, then spot factoring is your best solution.
5. Payroll Invoice Factoring
If your business is struggling to meet payroll on time, then payroll funding may be just what you need. With this type of factoring you can get immediate funds so that you can be sure to make payroll on time.
6. Small Business Invoice Factoring
This type of factoring is perfect for start up businesses or small business that are struggling to get grow. Because small business often run into issues with creditworthiness when clients don’t pay their invoices back in a timely manner. This can affect growth, payroll, and inventory and supplies you needs, etc. With invoice factoring, your business will get the cash flow it needs to work its way out of debt or stay out of debt.
We hope these tips have helped you so that you can find the right type of factoring for your business’ success today!