Invoice Factoring FAQs

In a fluctuating economic climate, one of the easiest ways for businesses to attain working capital is through invoice factoring. Invoice factoring is a financial transaction through which a business sells its invoices to a factoring firm at a discount. In exchange, the firm provides immediate money with which to finance continued business. Here are some frequently asked questions about invoice factoring that will help business owners understand how using an invoice factoring company can help them increase cash flow.

Is invoice factoring a loan?

Invoice factoring is not a loan – it is the purchase of a financial asset.

What are the benefits of invoice factoring ?

Invoice factoring is of tremendous advantage to those businesses that have a reliable, consistent customer base. It is also the perfect solution for companies that have a lot of money tied up in invoices and have cash flow constraints. Invoice factoring can help companies cover operating expenses and improve business management.

With additional working capital, a company will have more business flexibility (to increase inventory, offer special terms to customers, pay off existing debt, capture new opportunities, etc.). Additionally, invoice factoring is easier to obtain than other business financing solutions and uses a simplified application process.

How does the invoice factoring firm determine the fee?

The cost of invoice factoring varies based on several factors. These factors include the creditworthiness of the business’s customers, projected dollar volume going through the company (usually higher volumes are factored at lower rates), and the number of factored customers.

The invoice factoring company may also consider the financial profile of the company, the number of invoices sent to customers, the average invoice amount, and the customer’s average paying time. Based on these criteria, the invoice factoring company will calculate the percentage that a business will pay each month.

Do I have to sell all of my invoices?

Invoice factoring companies do not require you to sell all of your invoices, just the amount necessary to get the cash flow you need to keep your business running. Firms will work with their clients to come up with the right solution for every situation.

What happens if my client doesn’t pay?

Invoice factoring clients are protected by a reserve rate, an amount that equates to typically 10 – 20 percent of open invoices, providing a ready supply of working capital. Reserve rates are determine by historical and projected turn of receivables, dilution rates (returns, disputes, etc.) and the credit worthiness of your customers.

How soon can I get funds?

For a business to grow, it is necessary to have funds on hand in order to accept new customers. Materials and funds to pay workers are often needed long before the customer’s invoice is paid. One of the most frustrating moments for a business owner is turning down a large order due to a lack of funds.

By using invoice factoring, business owners can eliminate the 30- to 90-day period it typically takes for customers to pay their invoices, and they’ll have the immediate cash on hand needed to run the business. Using an invoice factoring company gives businesses the upfront revenue needed to prevent potential clients from going to a competitor. It can also serve to ‘level out’ extremes in billing and collection cycles that can often plague small and medium-sized business. This consistent and continuous cash flow facilitates steady growth.

If you need a committed invoice factoring company, Far West Capital is your solution. Far West Capital, a leading invoice factoring company serving Texas, Oklahoma and the entire U.S., specializes in invoice factoring, helping manufacturing, distribution and service companies to succeed. Far West Capital is strongly committed to providing businesses with convenient invoice factoring to solve their cash flow challenges. For quality, personalized service, visit Far West Capital at www.farwestcap.com or call 512-527-1100 today.