What Is An Invoice Factoring Company And How Can You Choose The Best?

If your business provides services to other organizations, you’re probably familiar with the process of issuing invoices and waiting for payments. While it is common for invoices to have different payment terms, it can create some issues for your business’s cash flow. This is where invoice factoring companies come in. They purchase unpaid invoices at a discount, so you get the funds you need for your business sooner. Keep reading for more details.

What is an Invoice Factoring Company?

An invoice factoring company specializes in buying a business’s unpaid invoice at a discount. In this case, your business gets a significant percentage of the invoice within a few days, while the factoring company assumes ownership of the unpaid invoice and the payment process. Once your clients pay their invoices to the factoring company, you get the rest of the money minus the factoring company’s fees.

What Should You Consider When Choosing an Invoice Factoring Company?

Getting cash for your invoices immediately rather than waiting for clients to pay boosts your cash flow, helping you meet expenses and grow your business. However, you need to choose an ideal invoice factoring company to avoid inconveniences in the long run. The following are important things to consider.

The Type of Factoring Services Offered

When applying for factoring, you need first to understand the services offered by the company. It will help you choose a factoring company that best suits your needs. There are two primary factoring services: non-recourse and recourse factoring. Recourse factoring means you’re responsible for buying back invoices that clients fail to pay to the factoring company. Non-recourse factoring means that the factoring company buys invoices outright and provides a credit guarantee on your clients. This eliminates the risk of bad debt and non-payment for clients.

The Terms and Rates

When considering invoice factoring, you should be clear about rates, terms, and conditions. Every factoring company has unique rates depending on your industry, size of your invoices, the number of invoices, customers’ credit history, and the time your clients take to pay. You should also understand whether a company charges variable or flat fees. Variable rates mean that the longer your clients take to make payments, the higher the fees. However, flat rates require you to pay a fixed fee upfront for factoring.

The Industries the Factoring Company Specializes In

Factoring benefits almost every business. However, it is crucial to work with a factoring company that understands your industry’s aspects. These include how the billing works and your client base. Such factoring companies know what is best for your business.

The Quality of Service

You cannot ignore the quality of service when choosing a factoring company. A good company will provide a dedicated team to work with you regularly and understand you and your business. This way, you can rest assured of consistency and reliability.

Work with Exemplary Professionals Today!

Business Factors & Finance has been providing factoring services to businesses in multiple industries for decades. We are a full-service company committed to playing a vital role in your business’s development. Contact us today for more information.