Factoring Invoices: One Way To Make Immediate Collections

2007-03-08 10:33:40

( Financial )



Factoring invoices, also known as invoice discounting, is the process of selling your company’s outstanding invoices to a factoring company who exchanges the invoices for cash.

Once you assign an invoice to a factoring company, that invoice will become the property of the factor. When you bill your customer, the factoring company is informed that an invoice has been issued. The factor will contact your client, who will pose as the credit and collection department of your company, and confirm the amount of your invoice. The process of invoice verification will eventually cease once a long and trusting relationship has been built.

After the verification process, which will take a day or two, the factor will release majority amount of the invoice to your company in cash. It will then be the factoring company’s job to make constant follow-ups with your client until the invoice is paid.

Once full payment is received from the client, the remaining amount of the invoice that was previously held by the factoring company will then be released to you in cash; however, a small percentage of the entire invoice amount will be deducted from the balance as the factor’s service fee.

Factoring invoices gives a company the advantage of providing more money to use to use for its company’s day-to-day operations, improves a company’s credit score and increases its working capital.

If your company is interested in factoring invoices, looking for a factor is not difficult; however, you should find a factor that can give you advice on how you can take full advantage of invoice discounting. You should choose a company that is sincere enough to inform you of all the fees and conditions involved.

You should stay away from factoring companies who have just started business operations, and have inadequate training in the profession of factoring. Also avoid factors that are part time brokers: this is a sign that the business that is owned is not well established. Finally, any factors that charge a high fee when you terminate your contract should likewise be avoided.

You will need to submit an application to the factor before you can start factoring invoices. A factoring company will normally check your business registration and licenses, the products that you sell or services that your business offers, your credit worthiness and your credit history. Some factors may also have additional criteria, so it is best to check with the factoring company itself.

Factoring companies differ in fees and the services that are offered, so it is best to make a comparison between different companies before finally deciding on a factor.


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