Invoice factoring is a system with the help of which you can get rid off the problem of unpaid invoice. Many companies are now using this system to overcome the unpaid invoice problem. Here a financial company, at a discounted rate, will purchase your company’s account receivable. So, if you don’t want to get trapped in the problem of unpaid account receivable then this is the time when you could delve deeper into the concept of factoring the invoice.
Now let’s get into the core concept of factoring with a good example. Say that you have got a company and you sell goods and services, so in this process you have sold goods to a client worth $10000, and you have given the client a credit period of 90 days. In these 90 days your customer has to return you the complete amount.
Now, the problem comes when the customer is unable to pay off the entire amount in 90 days. You can personally realize the amount but it can be a bit difficult, so here you can take the help of a financial company whom we call “factor”. Here, the factor will purchase your unpaid account receivable.
Once this factor comes into the scene it will check and verify the client details and after getting the entire documents of the invoice it will pay you 90% of the entire amount of the invoice. The best thing about factoring is that here you will get the entire 90% of the invoice amount transferred to your bank account in just 24 hours.
The rest 10% of the invoice amount will get transferred to your account in 90 days. Here the factor will receive the entire amount and thus it will pay back your rest amount in 90 days. So, in short you are getting 90% of the amount in 24 hours and the rest in 90 days.
For the entire service, the factor will charge you a certain amount as service charge. This will be a fixed percentage upon the entire invoice amount. So, at the end of 90 days with the help of the factor you will receive the entire invoice amount subtracting the service charge. If n% is the service charge then after 90 days you will receive 10000-(10000*n %) amount.
With factoring, you can maintain a proper cash flow in your organization and also get fast money for meeting other expenses
So now there is no need to waste your time and energy while getting the unpaid invoice from the clients because with factoring you can just forget all tensions. With this system you can get a better credit rating for your company. Moreover, you won’t have to face the problem of debt. So, grow your company and increase it funds with invoice factoring.
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