Whatever the nature and the size of your business, there may be instances when it goes through a squeeze in cash flow. Even if you have customers who will pay you within a specified timeframe, your business needs (more production, expansion, marketing, etc.) may be immediate.
This is where online factoring comes in. Tabbank.com shares some useful information to help you understand how this option works.
What is factoring and how does it work?
Factoring is an exchange in which a business offers its invoices or accounts receivable to a third party organization known as a “factor”. The factor receives payments on those invoices from the business’s clients. Accounts receivable financing is a term often used in other industries to refer to factoring.
Organizations resort to factoring so they can get money rapidly on their receivables, as opposed to holding up the 30 to 60 days it frequently takes a client to pay. Factoring enables organizations to develop their income fast, which makes it easier for them to pay employees, attend to client requests, and grow their business.
What is a cash advance?
You can receive from the factoring provider a percentage of the value of an invoice in advance. The provider typically releases the money within 24 hours. You will still receive from the factor the balance of the invoice after your client pays. The factor will take fees out from the balance before paying you. The rate of advance you receive can shift, depending on what industry your organization belongs to and the factor you choose. The cash advance can go from 80% to as much as 95% of the invoice’s value.
What is the benefit of factoring?
Financial goals and expenses may not wait for clients to pay, thus limiting your company’s capabilities. Factoring offers different benefits, but the most important one is how quick you receive the payment on your invoices. With factoring, you don’t have to wait long before money is available in your company accounts.