May 19, 2011

Invoice Factoring Starter Guide

The invoice financing industry is of great benefit to many businesses around the country.  By using invoice financing, businesses can collect funds on unpaid invoices immediately, thus enhancing cash flow and streamlining accounting protocols.

Invoice financing has several advantages, the first of which is that it removes the necessity to hire accounting personnel specifically to take care of invoicing, or track down payments.  This time consuming and potentially expensive activity becomes the responsibility of the lender (or factor) with which the business is associated. This frees up time to concentrate on core business activities.

There are of course some costs associated with invoice financing that any business intending to use this service should take into consideration.  Firstly, the lender will charge interest, usually 1.5 to 3-percent above the current bank rates.  There are also fees associated with the processing of the sales account, which the factor will usually calculate on an annual basis.  Invoice financing is an expense that many businesses choose to accept because of the service that the industry offers to them.

Some businesses for example find that the cost savings elsewhere, like the invoicing mentioned above, make it worthwhile. Others find that they are able to quickly raise funds through factoring, whereas using a bank would take longer and be less flexible.

Every business that opens an invoice financing account must have an active bank account so that all transactions can happen quickly, and income can become swiftly available.

Sometimes an invoice remains delinquent after the factor has paid the business.  In such an eventuality, the business would be solely responsible for repaying the invoice financing company the full amount of the loan plus the interest on that account.  Most invoice financing companies offer an insurance policy as a protection against penalties accumulated by the customer because of non -payment of invoices. Using this insurance makes the service more expensive, but gives businesses peace of mind that if their creditors fail to pay, they won’t be liable for the outstanding balance.

If you are considering using invoice finance or factoring, it is important to talk to a qualified broker to explore the options available to your business.

About The Guest Author: The above guest post has written by Kedisha from Touch Financial, the factoring specialists.

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