Invoice factoring is a kind of financial transaction where a business sells accounts receivable to a factoring company to ease up their cash. This is important to protect working capital to meet different expenses, increase their sales, and provide payroll. Invoice factoring helps you convert present unpaid invoices into cash. Accounts receivable financing, invoice financing and receivable financing are all identical terms which are used for factoring. If your clients request generous terms, the invoices can be due for 30, 60 or 90 days before payment. With the cash, you can avail opportunities to expand your business or meet an important expenditure like payroll. By searching the Internet, you will get some well-known Georgia invoice factoring companies.
The Function of Invoice Factoring
An invoice is issued by a company after delivering the product or service to their customer. Then the invoice is sold by the company to the factor and an advance is received. Generally, it is between 70% and 90% of the invoice value. The company can perform more tasks with the cash on hand. These tasks include paying to employees, buying supplies, materials and inventories. After the outstanding invoice is paid by the debtor, the business obtains a rebate for the rest of the funds. The rebate is deducted by a fee that depends on term and value of the invoice. Some reputed Georgia invoice factoring companies are there to eliminate your concern with factoring.
Criteria for Invoice Factoring
It is easy to qualify for invoice factoring compared to long term financing like loans for commercial real. Most of factoring companies check three basic criteria:
- You have invoiced government (B2G) or business (B2B) customers. Your customers are needed to have good credit scores and established businesses. It needs to feel easy that your customers can pay off your invoice.
- The invoices are required to be due and also payable within 90 days provided that other loans are not there. For instance, you cannot have another outstanding short term loan.
- There is no history of tax and legal problems of your business.
Some factoring companies may need other things for your business like minimum time in business or minimum credit score. Usually, these needs may differ in case of different Georgia invoice factoring companies.
Costs of Invoice Factoring
Invoice factoring plays an important role to be an effective working capital solution for different sized and aged businesses. Lots of factoring companies can function with you. It is difficult to understand the overall costs and fees of the invoice factoring. Factors and their lending programs can differ time to time. A few factors specialize to lend against invoices which is due in 90 to 120 days while others focus on smaller or bigger borrowing limits.
Factoring means a financial agreement where the business sells its trade receivable to the factor and gets the cash payment. Invoices can be sold to a factoring company for an instant payment. A business can meet its instant cash requirements. The cost of factoring may differ from business to business.