Wednesday, November 21, 2012

Invoice Factoring Costs: A Small Price for a Great Help




Apart from the recurrent growth of a business, its very survival depends upon uninterrupted cash flow. However, for many businesses, the newer and the smaller ones in particular find it quite difficult at times to avail funds from various sources. 

Invoice factoring, is one of the latest inventions in the finance market. In this process an entrepreneur sells his unpaid invoices to a third party, i.e. the factoring company. The money he thus receives is used to fund his business. 

As far as the factoring company is concerned they collect the payments against the invoices from the customers.
 

The Factoring Rates


The factoring company, charges a certain amount as payment for the immediate service they offer. The factoring cost is charged as a discount on the amount it pays to you. 


In most of the cases a factoring company has charged a discount rate of about 1.5 to 5%. How the rates will be structured depends upon the company itself. 



However usually it is based on a daily segment, for instance a segment of 10, 20, 30 days or so and it is a percentage of the invoice value. 


Calculating the Factoring Cost


The calculation is pretty simple. For instance, if you run a business which is going to factor a sum of 50,000 dollars a month at a factoring rate of 2% every 10 days. Therefore, you would have to incur a factoring cost of 6% of the total Invoice value for a 30 days customer.

It wouldn’t be an extra or unnecessary expenditure, since in all probabilities you would have allowed a certain discount to the customers for speedy payments, which neutralizes the expenditure.

However, you need to make sure that Invoice Factoring suits the nature of your business. 
For instance, if you need cash flow to continue business operations, it is imperative to factor invoices to keep the lights on. 

For example, independent truckers often need freight bill factoring to buy more fuel and perform maintenance on their vehicles to continue working. Once you are decided, you would have to go online and look for a suitable factoring company. Get online quotes from them. 

The companies will ask you to produce your customer list and receivable accounts aging list for review to assess the credit risk and the time they would have to wait to for the payment. 


Higher Charges for Better Services


You must as well be prepared for factoring rates varying up to 90%. But, it would necessarily mean that the company offers a better and a much higher amount as compared to other factors. 


If you find that the factoring company charges you a higher rate, since it offers you extra services, figure out if you need those services at all. You will obviously not wish to be shocked by any hidden charges later and thus it is important, to go through the terms and conditions of a contract before you put your signature in it.

The business lending market is no more solely depended on the banks. Invoice factoring has helped small business owners to a large extent by bringing ready funds to them, against the unpaid invoices.

Factoring services are not expensive. Therefore, if you are asked to pay absurd rates make sure that you have are the clauses and are getting services worthy of the payment. 


If not, then you are treading on the wrong path. Search for companies, which offer useful services and reasonable rates. It is not hard to find one!

Author’s Bio

Emily Jones is a freelance author penning articles on Invoice factoring and other finance deals for twenty five years now. She suggests that one should find Out What Invoice Factoring Costs are before he decides on factoring his invoices.


4 comments:

  1. Thanks for the information on factoring. I wasn't quite sure how it all worked, but this article has helped out a ton! Keep up the great work.

    ReplyDelete
  2. Invoice Factoring Services plays significant role in getting upfront finance on the delivered products or services and therefore they are being used by majority of businesses for the purpose of earning quick profits.

    ReplyDelete
  3. You will collect material regarding outstanding and paid accounts on a everyday, weekly, and monthly basis. The most obvious benefit of using invoice factoring is improved cash flow.

    ReplyDelete
  4. There is no need to keep your overdraft increasing because the facility grows with your business. You will have the working capital to respond more quickly to market opportunities. What's more, invoice discounting is more competitively priced in comparison to overdrafts and conventional loans.

    Invoice Finance

    ReplyDelete

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