Invoice Factoring: A win-win?

Invoice factoring, depending on your situation could be a great way to plug gaps in your revenue stream. It is low risk, easy to qualify for and can even smooth out your business operations.

1page_img3-bigFirst how does invoice factoring work? Invoice factoring involves selling your outstanding invoices to a factoring company or a “factor.” The factor buys your outstanding invoices and gives you a percentage on the amount owed to you in advance. The percentage given is usually 70 to 90 percent of the outstanding invoice. After the customer pays the invoice, the business receives the payment minus a fee charged by the factor. Essentially invoice factoring is debt free, as you are borrowing against money already owed to you. This makes invoice factoring a great way for certain types of businesses to raise money.

How do you qualify? First most factors are more concerned with the credit rating of your customers. You as a business owner only need outstanding invoices to qualify. But there are some basic terms and conditions many “factors” consider before you can be approved. You must have customers with outstanding invoices. The invoice your borrowing against must be due within 90 days. Obviously you cannot sell a single invoice to multiple factors and you should have a relatively clean business record. Depending on the factor your credit score may also be an issue. But if you as a business can meet these basic conditions you can likely borrow against your outstanding invoices. This can help you take advantage of immediate opportunities or plug gaps in your revenue stream.

Invoice factoring is helpful for particular businesses that need cash quickly or that have lags in payments by customers.

If you need funding quickly to take advantage of immediate opportunities or to pay for an unexpected expense then invoice factoring is a great way to raise the necessary funds. The traditional financing process can take awhile and depending on your situation you may not even qualify. Additionally if your business is seasonal, invoice factoring can smooth gaps in your revenue stream. This advantage also applies If your customers don’t pay their bills quickly. Invoice factoring can shorten the payment cycle and help you get the money you are owed faster. Some factors can even manage outstanding accounts, thereby easing your business operations and saving you the difficulty of collecting payments from your customers. In short, invoice factoring is a low-risk way to raise money quickly, in specific situations and for specific types of businesses.

Potentially all parties involved could benefit from invoice factoring.

The borrower, the lender and the customer could all potentially reap the benefits of invoice factoring. You the borrower get the money your already owed. Additionally if you outsource your collections to your factor, your customer could find it easier to pay their bills. The factor also benefits collecting a fee at the end of the process. Invoice factoring may not work for every business. Evaluate your situation carefully. But if you have many outstanding invoices, need money quickly or have slow paying customers then invoice factoring may be right for you.

Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177 NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage