Factoring allows you to turn business assets into immediate capital. In exchange for unpaid invoices and a small percentage of the total value, your business obtains an instant infusion of cash for virtually any need. It’s no wonder than this type of financing is popular with businesses of every size. Here are several questions and answers that can help you decide if factoring is a good fit for your company.
How Much Does Factoring Cost?
The fees related to factoring vary between financing companies, and it’s always a good idea to do your homework before getting started. However, as a general rule, factoring is more cost-effective than other types of financing, such as working capital loans, bridge loans and other short-term bank loans. You don’t usually need to worry about closing costs, maintenance fees or other costs.
Many factors (companies dedicated to invoice factoring) simply subtract a small percentage of the invoice’s total value from the amount deposited in your bank account. For example, they may give you an advance of 75% of the invoice value immediately. Then, when your customer pays the invoice, factors deposit another 20% or more in your bank account, keeping only 3–4% of the total cost.
How Many Invoices Do You Have To Factor Each Month?
With most factors, there’s no minimum amount required or long-term commitment. The service is simply available whenever you need it. If you suddenly see a great business opportunity but you’re short on capital, you can transform one or more invoices into an instant cash advance. This gives you amazing flexibility.
What Kind of Credit Score Do You Need To Use Factoring?
One of the biggest advantages of using invoice factoring is that it’s accessible to companies with less-than-ideal credit. You don’t need an excellent business credit or personal credit history to qualify. As long as your customers have a reputation for paying their bills on time, you can use those invoices for the process. In other words, it’s your customers’ credit that matters, not yours.
How Easy Is the Factoring Process?
Since many factors focus completely on this type of financing, they often utilize high-tech platforms that make getting started a breeze. For example, you may have a special program or app on your phone. This app lets you submit invoices for approval. As soon as the invoice is approved, funds are deposited in your company’s bank account, no questions asked. You don’t have to explain how you want to use the money, and you don’t need to worry about interviews. All of this happens within about 24 hours or less.