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Important Benefits of Invoice Factoring


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February 19, 2008

Important Benefits of Invoice Factoring

By Brian Solomon, TMCnet Web Editor


A non-recourse factor can eliminate bad debt from your business income statement by assuming the risk of bad debt itself.
Most of your tasks related to invoice processing are taken care of by the factor. Typically, a factor manages important tasks such as posting invoices, entering payments, depositing checks, and generating regular computer reports.
The biggest advantage of invoice factoring is that the funds grow with your sales figures. As the sales figures of your company continue to rise, you become eligible for higher amounts. Thus, your company's growing financial needs are taken care of immediately.

Many companies offer early payment discounts and volume discounts to customers. Since you have the option of raising funds immediately through invoice factoring, you can take advantage of such discounts when purchasing raw materials. This can considerably reduce your manufacturing costs. If you are not in a dire need of finances, you do not have to give any form of discounts to your clients to boost company sales.
Your equity in the company is intact when you obtain financing through invoice factoring. When extending funds, the factoring company considers the dollar amount of the outstanding account receivables of your business venture. There are several good factoring firms out there to help you with your business needs. The biggest advantage of working with a good factoring firm is that clients save you from the trouble of waiting for money owed to you. Every "accounts receivable factoring firm" differs in terms of the fees charged and the services offered.
You need to look into several details before selecting a factoring company. Each company has its own policies to determine the fee structure. When selecting a factoring company, it is important to understand the various factors that a company takes into account to decide on fees.
Usually, accounts receivable factoring companies decide fees to be charged to you based on the credit worthiness and the financial strength your customers. Typically, companies look at important details such as how frequently you bill your customers, how long your customers have been in the business and how soon they settle your invoices.
You will be required to provide your outstanding invoices when working with a factoring company. The factoring company then extends funds to your business depending on your advance rate. When working with a factoring firm, you will submit outstanding invoices to them. They will then provide your business with cash based upon your advance rate. Advance rates usually fall in a range from 75% to 90%. In other words, the company will provide you funds in the range of $750 and $900 for every $1,000 of outstanding invoices submitted to the company.
Invoice factoring can be a good source of business finance; however, it still pays to investigate thoroughly to make an informed decision.
Brian Solomon is a Web Editor for TMCnet, covering news in the IP communications, call center and customer relationship management industries. To see more of his articles, please visit Brian Solomon’s columnist page
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