Imagine you are a business owner who is owed 7000 €. They have promised to pay in a couple of months. However, due to any reason you need to get the cash as soon as possible. Going to the bank and getting a loan is a lengthy process. This where a Factoring company can come to your rescue. You can sell your invoices to them at a discounted price. The factoring companies pay you 4700 € immediately. Then collect and keep the fill 7000€ a few months later.
An Invoice Factoring company pays your invoices issued to clients on an agreed fee and then collects the debts from your client. Most financial institutions and banks do not allow cash loans or advances to companies with a low credit score. With a Factoring company, cash is advanced as per the value of the companies invoices.
The only four factors comprise Invoice factoring:
- Your business
- Your Debtors
- One or more invoices
- A Factoring company.
Are Contractors and Construction Companies Eligible for Factoring Invoices?
This service is available for a wide range of industries. Even Construction companies, which fall in the ‘restricted zone’ for many banks or other lending businesses due to their slow cash flow can make use of this facility. Construction factoring companies combat problems like slow payments and maintaining business activities. It provides funds needed in case the company needs to increase staffing, cover payroll or even purchase new and necessary equipment. Construction companies and subcontractors can benefit from Factoring as a short or long-term financing option.
It is an ideal solution for contractors or subcontractors that issue invoices with a 15-90 days credit term. Even those companies which have a high volume of invoices and immediate expenses should consider invoice factoring. This provides them the urgent funds they need helping them grow in confidence to take up larger contracts.
4 Simple Steps To Factoring Process.
A monthly minimum of invoices to be factored in is required by Factoring companies as the lesser are the invoices the higher are the operational cost. Normally these minimum invoices are agreed upon before the start of the contract so both sides achieve their targets.
Though the concept of Factoring may sound frightening, it is in fact the easiest and simplest process for getting access to quick cash flow for any business as compared to banks.
- You register yourself with an Invoice factoring company
- Hand over the invoices due for 30 to 90 days from trustworthy creditors.
- The Factoring companies pay you the debt amount at a discounted and agreed rate.
- The Factoring company collects the money from your debtors on your behalf.
Invoice factoring offers different options with the benefits of flexibility to react to market changes and enhances growth for many industries like apparel, manufacturing, and commercial businesses. As far as a company is selling a product or service and has creditworthy clients who are due to pay in 30 to 90 days, Factoring provides a simple solution.