Invoice factoring is a type of invoice financing in which you sell some or all of your company's outstanding invoices to a third party as a way to improve your cash flow and revenue stability. A factoring company will pay most of the invoiced amount to you immediately and then collect payment directly from your customers. Technically, invoice factoring is not a loan. Rather, you sell your invoices at a discount to a factoring company in exchange for a lump sum in cash.
The factoring company then owns the invoices and gets paid when it charges them to its customers, usually within 30 to 90 days. A factoring company buys a company's unpaid invoices in exchange for a factoring fee that is deducted once the customer's full payment has been collected. A factoring company allows companies to free up cash when buying their invoices at a discount. If you're looking for a way to gain even faster access to business funds, you can consider a wider range of sources in addition to invoice factoring.
That's why when you sell your invoices to a company, you only get a percentage of the total value of the invoice. AltLine partners with lenders across the country to provide invoice factoring and accounts receivable financing to its small and medium-sized business customers. In general, invoice factoring takes between 2 and 7 days and is financed approximately 1 to 3 business days later. The second is offered all over the web by lenders who want you to confuse factoring with their “offer of financing with invoices”.
The factoring company is responsible for communications with its customers about their invoice, and it is the factor that processes the payment. Your advance payment percentage, according to the terms of your factoring agreement, usually ranges from 75 to 90 percent of the nominal value of the account receivable. You may want to consult a small business finance lawyer who is familiar with factoring to review the settlement documentation and make sure you understand the various possible situations, such as what happens if you need to delay a payment. This means that you receive a percentage of the amount of the bill due and the factoring company keeps the rest as a fee for anticipating and raising the funds.
To collect its own payment for its services, the factoring company will also deduct your service fee, also called a refund, from the remittance. If you have collection problems, your customers don't pay you on time and you don't know what else to do, factoring could be a good solution, since it puts that responsibility in the hands of a third party with collection experience. Velotrade offers all the advantages and eliminates the disadvantages compared to traditional factoring companies. Today, Internet access and technological advances have made factoring increasingly easier and more accessible for small businesses.
The factoring company will contact the customer who owes the invoice and that customer will have to direct payments and questions to the factor instead of to you. Companies that work with a bank-owned factoring company may also have an easier time transitioning to a commercial loan at a later date. The supplier sells the buyer's unpaid invoice to the financial supplier and receives the cash quickly; the buyer also has more time to pay for their products.