Do you wonder how Invoice Factoring would work? Invoice factoring has been a transaction whereby you would be able to sell outstanding invoices for instant cash. You do not have to wait for usually 30 days for the invoices to be paid. You would receive an up-front, lump-sum payment for your invoices. The advance payment that could be provided within a day would be typically 70 to 90 percent of the total invoice value. After the buying company receives complete payment for the invoice, you would receive the remaining value after deducting the factoring fee. This fee has been based on several factors. It would be inclusive of the credit worthiness of the customer. The fee would be based on the average terms along with the invoice number and size. However, the invoice-factoring fee would be up to two to five percent of the total invoice value.
Working of invoice factoring transaction
In order to give you an idea about the working of invoice factoring transactions, find below some of the major steps in the process.
You would be able to submit an application to an invoice factoring company.
After you have been approved for invoice factoring with the company, you could start forwarding the invoices of your customer to the company for availing cash advances.
You would be given advance payment up to 90 percent of the value of the bought invoices.
Your customers would be most likely to submit payments to the company that purchased their invoice. The company would forward you the remaining or unpaid portion of the invoice after deducting the invoice-factoring fee.
Choosing the invoice factoring partner
When choosing an invoice-factoring partner, it would be imperative to choose the right kind of company to work with you and your customers. Find below some important considerations to be kept in mind.
- What kind of reputation and record of accomplishment does the company have?
- What you would be able to have for your money? You should determine the accounting, reporting and other capabilities of the company.
- How much the invoice factoring company would charge? You should evaluate various components of price, inclusive of fee, rate of interest along with portion of your invoice that would be held back in reserve.
- How the invoice factoring company treats your clients? The company should communicate with the customers when they take over the invoice.