When it comes to financing correctly, it’s important to take the time out to understand the different types of invoicing options available to you. Making sure your financing practices are perfectly integrated with your business is harder than you might think. We wanted to discuss invoice factoring, what it is and how it can, or if it can benefit your business.
What is invoice factoring?
Invoice factoring is a term used to describe a form of invoice financing that allows companies to sell their accounts receivable. This means debt can be sold to a third party and the responsibility of receiving payments will be transferred. Ownership of the debt will remain the same, but payments will be made to the third party.
Invoice factoring is much easier for small businesses and is a more conventional financing method as you are technically selling an asset rather than getting a loan. In order to apply for Invoice factoring, you will need invoices from creditworthy commercial clients, due to this it’s a far more common method used by small businesses.
What are the Benefits?
There are a number of benefits with invoice factoring, but these can change depending on the company you choose to use. If you are specifically using Peak Cashflow for your invoice factoring, here are some of the benefits we offer.
- Up to 85% of the value of your unpaid invoices is immediately available
- Linked to full credit support and detailed credit checks
- Experienced credit controllers will have direct contact with your customers to ensure that payments are received promptly
- All elements of your credit control function will be managed by us, including statements, collection letters and – if ever required – legal actions
- Combined with bad debt protection, your unpaid invoices are protected
- You can contact us anytime for advice, on the phone or in person
There are more universal benefits with all cashflow companies that off invoice financing such as freeing up your own company and employee’s time by outsourcing industry professionals, insuring your finances are being handled by certified businesses and future potential customers being credit checked to insure you have more reliable customers.
Is it suitable for your business?
Whether or not invoice factoring is suitable for your business will be dependant on a number of things. Firstly the size of your business will certainly be something to bear in mind, particularly when considering the sums of money you will be selling to invoice financiers. Your financial strength is also another key consideration when invoice factoring, this includes any forecasting for busier or quieter times of the year for your business. Also bear in mind, you will need to participate in a financial audit and provide reasonable financial statements in order to apply.
We may have only scratched the surface, but we wanted to provide a little insight into invoice factoring as it’s one of our most commonly asked questions.
If you want to find out more, or learn about how we could provide a bespoke service to you, please do contact us.