Every business struggles with cash flow at some point, and sometimes businesses that bill via invoice are the first to do so. If you’re a business owner that uses invoices, you know that waiting for payments can cause problems with your cash flow. Invoice factoring is a financing solution that works great in this situation. In this article, we’ll go over everything you need to know about it.
Traditional Invoice Factoring
Breaking down factoring to it’s most basic form looks like this:
- You sell your outstanding invoices to a factoring company (referred to as a factor)
- The factor then gives you an advance on the majority of the balance
- The client’s payment is collected by the factor
- The factor then gives you the rest of the balance, minus a small fee
Percentages and fees will vary from factor to factor, but you might be thinking that you don’t want to give up that small portion of your profit for a fee. You have to keep in mind that this is a service you’re paying for, and the factoring company needs to make money just as your business does. From a business standpoint, immediate access to that revenue can help tremendously whether you’re struggling to pay employees and buy materials or if you need an influx of cash to start a project that will grow your business. Additionally, be wary of extremely low fees, as there are usually other costs associated with them that you may not be aware of.
Recourse vs. Non-Recourse Factoring
Recourse factoring means that if you factor and invoice and the customer doesn’t pay their balance, you are responsible for paying the factoring company. Non-recourse is the opposite, where the factoring company takes on the risk of the customer not paying. At CoreFund, we do offer non-recourse programs that you can take advantage of.
Invoice factoring doesn’t just get you the money you’re owed faster. Depending on what service you’re using, there may be additional benefits that come along with it. Free customer credit checks and invoice auditing are just two examples of what we offer at CoreFund Capital. Another additional benefit is that factors are responsible for payment collections. That means that you can focus on what your business needs instead of worrying about collections.
Invoice factoring is a simple and easy process that can benefit your business greatly. If you’re interested in learning more, check out some more of our blog posts or contact us today to see if invoice factoring is right for you.