What Is Factoring Finance and How To Use It?

You may be prospecting for your business growth where your plans and other involved stakeholders are ready, but your balance sheet doesn’t allow. At the same time, your accounts receivable may have tied up a lot of money. In this case, you need to access the funds via factoring.

What is factoring finance?

In simple terms, factoring finance is a technique used by businesses to fund their cash flows, where they sell invoices to third parties at discounted rates. Factoring is ideal for small and medium businesses that lack well-established banking records, especially with huge lenders. Factoring, therefore, relieves the first party the burden for debts and enables them to have the required working capital so that they can continue trading as usual. When it comes to financial circles, they say that banks only offer financial services when people don’t need them. This is because financial institutions use a line-based model for undertaking their operations, depending on how your business performs and its current asset value. Factoring is an alternative solution for businesses to access funds tied up in their accounts receivable. Your factoring company will then buy the outstanding advances and invoices to 85% of the total value.

How it works

  1. Invoices into cash

Here, your business will provide goods to creditworthy clients only where a period of 30-90 days is required for the invoice to be paid to maintain positive cash flow. The unpaid invoices will be paid then sold to the factoring company and receive an immediate payment of about 90%. After receiving your application, the factoring company will review it in one day.

  1. Verification

Next, the factoring company will perform a due diligence check and then verify your invoices. This process will take about 3 to 5 working days. The due diligence will majorly focus on checking judgment search, commercial code liens, tax lien search, among other corporate searches.

  1. Same day cash

After completion of searches, the funding starts immediately. Here, the factoring company will have received and verified the invoices. Funding is done within 24 hours.

  1. Balance received

The clients will make payments directly to the third party company with respect to the agreed invoice terms. After receiving the payments, the factoring company will provide the amount remaining less their charges or fees.

In conclusion, these are the steps on how factoring finance solution works. The factoring company will also manage credit control, which will save a lot of your time.

What Can Factoring Do To Your Small Business?

It’s hard enough if you are operating a small business that offers customers a 30- 60 day grace period on payment simply because of a lack of working capital. However, invoice factoring can come in handy by giving your business the lifeline it needs. It is a form of factoring finance where the entity sells its invoices to a third party (factor) at a discount, usually between 70-90% of the total invoice. The factor is left to chase after payments from customers and makes a profit in the event of full payment.

Upon the entity selling its invoices, they receive immediate cash for their operations. In case you’re wondering what factoring finance can do to your business, read on.

Immediate Cash Flow

As a small entity, you may not have the financial muscle or assets to acquire business loans, and if possible, they usually take more extended periods to process. Such lapse of time may spell doom to your business. Invoice factoring as a form of factoring finance comes in handy and ensures that business operations are afloat. You don’t have to wait for your customers to pay you back to sustain your business.

On-going Cash Flow

If it makes sense for your business ton consistently have on-going cash flows, you could cement your relationship further with a factoring company to ensure constant flow, thus not hampering operations.

High Approval Chances

Credit score, loan history, and collateral are the least of a factoring company’s worries when it comes to factoring finance. They are more concerned with your customers’ payment history and their ability to pay. It’ll give them a pretty clear picture of the kind of risk they are getting into. Therefore, if you exhibit a low credit score or other underlying aspects that may dent your financial history, Factoring finance may come across as an essential mode of business financing.

Outsourcing

Following up on payments sometimes proves to be hectic and time-consuming. Outsourcing such functions to a factoring company free the entity’s time to deal with other essentials or tasks on its plate.

Productive Customer Relationships

Debt collection can be frustrating and downright tricky. Handling over such responsibilities to a third company absolves you, and you don’t have to be the bad guy anymore, hence promoting positive and strong relationships with your customers. It may also help you create a long-lasting relationship with your clients too.

 

Conclusion

Not all sources of financing work well with businesses. As a business owner, you’ll need to pinpoint what works well for you. If factoring finance as a source of business finance works well for you, by all means, go for it.

 

How can Factoring Finance Help to Stabilize your Business

Factoring is a financial strategy that most businesses employ in their activities. In the factoring method, the business transfers its trade receivables to a factor. In exchange, the enterprise receives liquid cash immediately. It is an effective method to obtain urgent cash, although it reduces the profitability of the business.

Factoring finance for a business can help in the following ways:

  • Introduction of immediate cash to the business

The debtors may take months to make their payment. If your business is experiencing cash problems and needs an instant boosting factoring is the best alternative. The third-party can avail you with the finance as soon as possible and help you stabilize your business.

  • Your business can avoid bad debts

Bad debts can primarily affect small business and make you run out of business. By transferring the trade receivables to a third party, you secure your transactions from debtors who default their debts.

  • Access to finance for business operations

Factoring reduces the burden of your business following up your debtors. The resources allocated for debtors follow up can be used in other business operations. It also saves time in the follow-up, and that time can be used in other resourceful activities. If your business does not have enough resources for day to day operations, this method can be useful.

  • Access to cash with no increase to your liabilities

A high number of debts can significantly destabilize your business. However, with factoring finance, you ensure that your business stabilization is not impacted. In other words, you help to stabilize your business.

Unlike most loans that increase your liabilities, factoring affects on your profit. It is an excellent factoring finance for business due to your ability to ensure your liabilities are constant.

  • Acquire liquid cash that is useful in meeting future unforeseen conditions

The market is dynamic, and factors in the external market, such as politics, can destabilize your business. When you have liquid cash in your business, you can be able to face any unforeseen conditions that come your way. Ensure you secure your business by factoring out your trade receivables.

Bottom Line

Factoring finance for business is essential in ensuring that your business has access to liquid cash. The significant advantage of this type of funding is ensuring that the cycle of cash collection is shorter, and money is available to meet business needs as soon as possible. However, before settling for a particular factor, ensure you investigate in the market for a factor that offers competitive prices.

 

Beginners Guide to Factoring Financing

Business owners are happiest when they get paid by their debtors and they dread waiting for payments. The wait for payments costs business owner’s opportunities since the wait starves business owners of the much-needed cash.

How Factoring Finance Australia Works

Factoring finance Australia helps business owners to ease the pain of waiting for payments from debtors. Factoring finance Australia works by enabling companies sell their invoices to factors for the sums that are outstanding at a particular time. Factoring finance Australia does not take as much time since it does not have a lengthy application process like it would with a bank loan. The factor earns a fee when the debtor pays up.

 

The main benefits of factoring finance Australia are:

  1. As a business, you will free yourself of short term financial constraints that may arise due to cash being held by debtors.
  2. The business can continue running normally without being held down by trade receivables. It, therefore, acts as a good bridge financing option.
  3. Factoring finance Australia provides money upfront for the business to continue its operations without hitches. The funds can be used to fund the growth of the business.

 

Guide to start factoring finance Australia

Factoring finance Australia is certainly a good option to have in your business to access short term cash. As a beginner, you should consider the following factors:

  1. Companies offering factoring finance Australia. There are many companies offering to factor and you are better off looking at the ones in your local area as they are better placed to understand your business and also know your debtors.
  2. Cost. Factoring finance Australia comes at a cost to your company. The cost depends on the duration it will take for the debtors to pay the invoices to the factor. You should read between the fine print to determine whether your company has the ability to meet those costs.
  3. Duration. The duration of factoring finance Australia otherwise the credit period varies between debtors. The longer the duration the more the cost due to the time value of money concept. Therefore, you are better placed to offer invoices that are likely to be paid within the shortest time to lower your factoring finance Australia’s costs.
  4. Terms and conditions. There are other conditions that a factor may have and you should understand them very well. For instance, how to solve disputes should they arise and any other legal issues that may exist.

 

In conclusion, factoring finance Australia is a viable option for short term financing for your business.

 

 

 

Discovering Invoice Factoring Financing and Its Benefits For Your Business

It is expected that most businesses will face financial struggles within the first year. Thiscan be especially stressful if you are not an experienced entrepreneur. If you area contractor, financial pressure is especially stressful because it impacts your ability to take on other jobs. The case of a contractor not being paid means that materials cannot be purchased and you cannot grow your business.

 

At Nova, we understand that most small businesses are under a lot of financial pressure but it is also not normal to let this financial pressure affect how business decisions are made. So, if you are currently in this type of situation, there’s something you can do. You may think that borrowing money from banks and financial institutions is your only option but you can also sell your receivables. Selling your receivables is called invoice factoring and it is a well-known method to finance a business.

What is invoice factoring?

Invoice factoring is a factoring finance method wherein you will sell your accounts receivables to a third-party called the factor. Receivables are achieved when you sell your products and services to your customers. You exchange your goods for the amount they are going to pay in the future. Most of the time, vendors give terms to customers so they can enjoy discounts for paying the receivables early. However, not all customers can pay early even with discounts. There are times that you will have to wait for more than 30 days just to get their payments. As someone who is continuously running a business and trying to grow, this can affect your cash flow and your overall business decisions. This is one of the main reasons why companies are choosing to sell their accounts receivables in exchange for funds that they could have gotten from paying customers.

So, what are the benefits of invoice factoring financing?

First and foremost, it allows you to get the funds you need for your business. The main purpose of why you are selling your receivables is to get additional money to keep your business running. In regards to a contracting business, this means that they can purchase new materials and take on larger jobs and that the contractor is not waiting for the client to pay outstanding invoices to do so.

Additionally, if a contractor is paid consistently and on time, they are able to buy materials, take on new jobs, maintain a good reputation in the industry and grow the business organically. By using a factoring finance method, you’ll be able to get the amount you need in your hands.

Secondly, invoice financing reduces your hassle of asking your customers to pay. Invoice factoring is selling your accounts receivables to a factor. This means that you are transferring the responsibility of an AR owner. The factor becomes the owner of the receivables so he/she should be the one contacting your customers to pay. This saves a lot of time and stress that comes from communicating with customers.

Finally, invoice factoring will only cost you around 10-20% of the account receivable plus the factoring fee. If there are variances as to the amount collected, the money will be deposited back to you. Compared to the amount you are going to get, a 5-10% discount is not that big especially if you really need the funds for your business, you are able to take advantage of discounts and improve your reputation.

How Receivables Finance Gives You Working Capital For Your Contracting Business

Are you a contractor currently waiting on invoices to be paid so that you can pay clients? Receivables finance is your solution!

At Nova we do not believe in adding loans to your existing debts. We do believe in being resourceful and thinking of other ways that you can add funds to your cash account. We understand how important it is for a contractor to buy new materials and take on new jobs. Our receivables finance facilities will allow you to relive these financial burdens.

So how does it work? Receivable financing allows you to gain funds for your business by selling your accounts receivable. As a factor, Nova can buy your accounts for a discounted amount. Most of the time, you will get 80% of the total amount of your accounts receivables advanced to you when you submit invoices. Whilst, there are factoring fees that are attached to this service, compared to the amount you are going to receive, the discount and fees are worth it so that you can pay outstanding payments on time and maintain a reputable reputation as a contractor.

Working capital can be defined as the money that you require to keep your business running on a daily basis. The amount that your business requires can be computed using your current assets and your current liabilities. So, how can receivables finance help you get the working capital that you need?

First, receivables finance can provide you with a significant amount of cash, quickly. If you are short on cash and you need actual money to buy your inventories or pay your existing liabilities, you can rely on receivable financing. Your accounts receivable will be converted into cash that you can utilise for your everyday business activities and eventually for business growth.

 

Additionally, receivables finance allows you to reduce your current liabilities and improve your credit rating. Some debts can impact your business in a negative way if they are left overdue and in order to maintain or establish a good credit rating so banks and financial companies will lend you money in the future, you need to stay on top of outstanding debts. With receivables financing, you can pay your creditors now without applying for a new loan because it is never a good idea to pay a loan for another loan.

Overall, receivables finance can assist contractors to stay afloat and expand by providing you with working capital.

What is Factoring and When to Use It As A Contractor

Factoring is a type of finance where a company sells its account invoices to another company at a discount. Companies opt for this form of financing whenever they experience cash flow problems due to the failure of clients to pay on time for the goods delivered or services rendered. In the case of a contractor, this means that if you complete a job for a client but they do not pay you for this service for over 30 days, you can get a cash advance on this invoice so that you can continue to take other jobs and grow your business.

Each time the seller sends an invoice to his customer, the factoring company pays the seller at least 70 percent of the invoice value within 24 hours. The remaining amount will be paid once the customer has paid the invoice in full. In this case, the customer does not make the payment to the seller but the factoring company.

Invoice factoring is one of the forms of financing that allows you to grow your business over time without the involvement of complex credit committees or time limits. As a contractor as long as you continue to provide quality services to creditworthy companies, a factoring company can finance your business against eligible invoices within the shortest time possible.

There are several other services that factoring companies can provide to contractors. This includes providing well-detailed reports because many businesses lack a qualified in house bookkeeper who can compile transactions in an accurate and timely manner which allows business owners to adequately assess their business growth. Additionally, factoring companies can guarantee their customers credit protection against non-payment resulting from customer failure to make payments promptly or when a customer is unable to pay for the goods delivered or services rendered. Most businesses are unable to seek credit protection because of the high premiums it comes with. These credit protection services are available to their clients at reasonable rates.

Overall, contractors can sit and relax, knowing that there is cash in the account to cater for salaries and other expenses. It is understandable why invoice factoring is becoming more popular amongst business owners looking to expand their businesses but have access to limited capital, especially when other sources of financing involve complex procedures that discourage business in their pursuant.