Summary of Invoice Factoring

Just for a quick overview of what invoice factoring is and how it works, this is a very basic sample of how ABC Services receives money from products sold to companies X and Y through the invoice factoring process:

• ABC Services delivers products to Company X and Company Y.
• ABC Services then sends Company X and Company Y an invoice for its products. At the same time, ABC sends copies of the invoices to a factoring company.
• The factoring company gets the invoices and advances funds to ABC Services.  ABC Services can then use the funds to help the business.
• The factoring company waits to get paid. Once they get paid, the transaction is settled.

Naturally, the invoice company takes a certain fee or percentage on each invoice, but in difficult economic times when waiting 30-45 days for invoices to be paid can mean the difference between keeping your business doors open or closed, the cost of factoring may be minimal.

Start Up Business Cash Flow

If you are in the process of starting up a business you are aware the costs can add up quickly.  To start with you will have the following:

· Licensing fees from the state and local governments.
· Attorney and other professionals consultation fees.
· Leasing or purchasing a facility.
· Renting or buying equipment.
· Hiring and paying personnel.
· Purchasing  materials/goods or inventory.
· Connection fees for such services as water, heat, electric, Internet, phone. · Software programs for accounting, supply chain management, and other business need.
· Advertising and/or marketing campaigns.

So, where do you get the money to pay for all this?  Perhaps a small business loan but in the economic crisis happening around the world it may be difficult to find a bank willing to loan money for a start up business.  Where is your cash flow going to come from during this time?  If you have invoices starting to build up from customers but it may take 30 days or so to collect you can sell those invoices to a factoring company and they will take out their fees and give you cash for the balance.  Then you do not have to worry about collecting on the invoices and you have cash flow to get you by while you build up your business.

Factoring Services

Some factoring service companies offer additional services that complement invoice factoring.  Some of these services include:

• Invoice services. Many businesses find it more cost effective and time efficient to outsource their invoicing.  Invoices can be created, stored in a computer database and mailed for you.  Payments can be entered and clients can receive regular reports.
• Collection services. Many factors  provide collection services. You will benefit by saving time and money and letting them collect for you.  Sometimes, the factor may buy the invoices at a discount and will pay you cash for them. This is known as discounting. This is different from their collections services.
• Accounting services. Some factors offer accounting services and payroll services. By using invoice factoring and accounting services from the same company it can simplify things for you.
• Bank relationship services. In times of financial hardship you want to maintain bank relationships, and communicate with financial institutions.   Some factoring services can help in this area as well.  Letters of credit can also be issued, along with other financial services.
• Credit counseling and management. Factors are experienced in dealing with cash flow, management and credit issues, and can help you in these areas. Some help with credit counseling and other credit management services plus help you with your cash flow.