It is true that factoring has been around for years, but it is only recently that it is gaining popularity among the general public. Are you a small business owner? Then you may know how important it is for your business to have the cash flow intact. This is exactly where invoice factoring and factoring comes into play. It acts as a great way to have quick access to money in order to meet your small business needs. Interested to know more about invoice factoring? Read on.
Is factoring a loan?
Technically, factoring can be better described as an advance on invoices or accounts receivables and not a loan. A factor is a third-party that buys all the accounts receivables of a company at a discounted rate. The money from the customers is collected by the factor in most cases and you, as a business, get the money that is trapped in unpaid invoices.
Types of factoring
There are two types of factoring:
- Recourse factoring
In this type of factoring, the factor buys your invoices and pays you the amount. In case, any of your customers fail to pay the invoiced amount, you are solely responsible to pay that money to the factor.
- Non-recourse factoring
In this type of factoring, you get paid for the invoices that the factor buys from you. In case, any invoice goes unpaid by your customers, you will not be liable. It is because of this additional risk to the factor that the fees are normally higher compared to recourse factoring.
Here are some benefits of invoice factoring:
- Great for companies that are fast-growing
- There is no dependency on credit standing
- Great for companies that are new
- You can get immediate working capital for your small business
Common misconceptions about invoice factoring
- Factoring is only for big companies
This is not true at all, as the largest part of factoring’s customers is small to medium-sized companies.
- Invoice factoring alienates your customer
Invoice factoring is actually a good way to build a better relationship with your customers, as it lets you be completely customer-centered and manage your deals and sales in a timely manner.
- Using factoring service means your business is unstable
This is completely untrue as factoring makes your company more stable financially.
In order to make sure that invoice factoring is a good option for your business, make sure that you do your homework like you would do with any other options. Use our platform FRENNS and enjoy the benefits of invoice factoring.
About the Author: Per Frennbro is the CEO of FRENNS, which offers high speed, low cost invoice financing for small businesses. As a serial entrepreneur, Per focuses on helping both small and medium sized businesses take control of their cash flow. Visit https://www.frenns.com and see how you can turn your invoices into working capital to help your business prosper.