Updated: Mar 10
Invoice factoring is a convenient way to manage your cash-flow related issues for many businesses. The reason why it continues to be a popular financing alternative for the businesses in not only 2020 but in the coming years is its easy-to-get cash feature. The process is quick and does not require any property security or credit checks to receive immediate cash. However, it is important to understand that not every business works in the same way. And understanding whether or not invoice factoring will benefit your business is key to get the business benefits. In short, no matter what type of invoice factoring you choose, you access immediate cash from unpaid invoices. All you need is to choose a trusted and reliable factoring company to receive the invoice value. In general, Invoice factoring companies operate differently, and invoice discounting is just one example
As we have already entered the second month of the year 2020, it is the right time to refresh our knowledge and learn about the updated 2020 invoice factoring process.
Why Invoice Factoring Remains the Popular Choice of Businesses Looking for Working Capital in 2020
Invoice factoring in the past few years has become a popular solution for SMBs. It is simply because the small and large enterprises require to maintain a fast and steady cash-flow; especially for sustaining their operations. Small businesses that opted for invoice factoring in the past benefitted from this funding solution. They were able to take advantage of several market opportunities while managing their unexpected expenses that drive investment costs over the finance budget. This is s one of the reasons invoice factoring is set to become one of the most opted solutions for the businesses in 2020.
As stated in previous blog posts about business financing and lending options, invoice factoring gives businesses a chance to make the best use of new opportunities and save time. Unlike other funding alternatives, invoice factoring does not involve any complicated and lengthy processes. Also, there is no long waiting period. Improved cash-flow is the key benefit of invoice factoring in 2020 and that may help businesses in:
Making Payrolls in less time
Staffing and recruiting new employees
Investing in various marketing and advertising strategies
Collecting cash and payments faster for the unpaid invoices
Paying reoccurring bills and rents
Buying inventory for better margin
Purchasing new equipment
Purchasing materials for different projects
It is worth mentioning that every third-party invoice factoring company may have a different set of conditions to build a factoring plan. But the basic frame of invoice factoring process will remain the same in 2020. Thanks to the official Porter Capital updated guide to factoring the below steps will guide you on how you can use invoice factoring in 2020 for a seamless business operation.
Step 1: Factor Search
Like previous years, invoice factoring begins with finding the best factoring company to fit with your company or business industry. Once you sent an invoice to the customers that ask them to make payment for your goods and services, you need to find a factor. Make sure there is a deadline on the bill you have sent to the customers. Find a factoring company and sell your invoices. Also, consider the frequency and number of invoices you are interested to sell as your factoring agreement might require you to make some recurring payment arrangements. In such cases, you may have to factor a specific number of invoices on a weekly or monthly bases. It is always better to discuss these terms before you sign a contract to avoid extra fees.
Step 2: Sign Factor Agreement
Step two comes after the selection of the factoring company. Choose a company that suits your budget and needs. The factoring company, such as Porter Capital, will review the transaction history and business credits, and most importantly the invoices you want to factor. Some personal credit checks can be part of this process down the road. The purpose is to evaluate the reliability of the customers and their likelihood of paying the invoices before the deadline. When they approve you, you will have to sign an agreement to commence the factoring process. Generally, a factoring agreement outlines the following components;
Payment plan details
The maximum amount of dollars to factor
At this stage, you can seek the services of a business lawyer or factoring consultant to go through the paperwork and help you understand the potential scenarios.
Step 3: Factor Assigning
After making an agreement, you will receive funds at the advanced rates. The amount will be between 80 and 95 percent of the total value of your invoice. Make sure you outline it in your factoring agreement. Typically, your business stability, transaction history, and industry are the basic factors that determine the factoring rates. Also, your customer will receive a notice from the factoring company at this stage. It informs your customers about invoice factoring agreement and explains to them how they can send payments for your invoices.
Step: 4 Payment Collections
At the last stage, the factoring company sends you the remaining balance after receiving payments from the client. This is called a reverse amount. Note that the factoring service will deduct their charges/fees from the collected payments and remittance. These services charges are usually a percentage of the whole amount you negotiated with the factoring company when drafting a factoring agreement.
Regardless of your business type, invoice factoring makes an ultimate solution for easy payment terms to all small and medium-sized businesses. The long payback period creates problems for the businesses looking for expanding their operations. By factoring their payable invoices, these businesses easily get the funds they need to run operations and avail growth opportunities for the future. This 2020 invoice factoring guide, in this respect, reiterates the factoring process with its key updates to help entrepreneurs receive immediate funds and maximize their profit margins. If you are ready to explore invoice financing or factoring for your business fill out the form below and someone will be in touch.