18. April 2012 12:22
Invoice factoring allows businesses to collect cash from invoices faster. In some cases, companies may even be able to recover funds from a transaction even if the buyer becomes unable to pay. The premise behind invoice factoring is that accounts receivable can actually be sold. The company that purchases your accounts receivable is known as a factor, hence the term invoice factoring.
There are two types of invoice factoring, The first, non-recourse, involves the complete sale of the invoices. In this situation, the company assumes all responsibilities related to the invoice. You receive cash immediately in exchange for this sale. One of the advantages of this option is that the factor may actually take on the risk of non-payment, meaning that you receive cash even if your client can never meet the bill.
Recourse factoring is the other type of invoice factoring. Also known as discount factoring, it provides much of the same financing options as non-recourse, typically at less of a cost. Both types of factoring require an exchange of information and discussion before approval. You will need to provide information about your top customers to the factor and provide a figure for how much funding you need from each.
One of the biggest benefits that applies to both non-recourse and recourse factoring is that they are flexible. You can finance as much or as little of your accounts receivable as permitted based on client credit and as needed for your business in its current state. This inherent adjustability is rare in term loans and more rigid financial instruments.
Crestmark is proud to provide invoice factoring for a variety of industries. If you would like to learn more about how this non-traditional financing technique can help you make payroll, fund an expansion, or just keep your business running smoothly day to day, our staff will be happy to talk with you.