Invoice Factoring is a financial tool that leverages the accounts receivable of a company to generate and accelerate cash flow. The factoring company purchases your invoices at a small discount turning them into immediate cash. You will normally receive from 80 to 95% of the invoice value depending on the industry of the customer. The remaining portion will be remitted to you once the invoice is paid minus the factoring fee. No more waiting 30, 60 or even 90 days to get paid with invoice factoring.
Factoring fees are determined through the initial underwriting process, and average between 1.5 and 2.5% each month on balances outstanding.
The criteria for underwriting invoice factoring is very simple. The borrowing company must be at least a year in business, with no tax liens outstanding or recent bankruptcies. The major underwriting criterion is the credit rating and solvency of the invoiced firm. The invoices billed to “major logos” (Walmart, Target, GE, Apple, Microsoft), and government entities (local, state, federal agencies and departments) are usually highly factorable. Many smaller suppliers, distributors and wholesalers with strong balance sheets and good payment histories have invoices which are strong candidates for invoice factoring.
Because the underwriting process for invoice factoring is industry specific, it is critical for companies seeking to leverage their invoices to select the appropriate funding factor. The factor needs to have an expertise in and serious understanding of the business in which they factor invoices.
Industries in which invoice factoring is an accepted practice include:
• Food and Beverage Distribution.
• Personnel Staffing.
• Construction (Contractors, Suppliers, Subcontractors, etc.).
• Government Vendors.
• Medical, Hospital and Pharmaceutical.
The obvious value of invoice factoring is the ability for an early stage company to acquire working capital from what may be their only real current asset, the credit rating of their customers.
For a free consultation, contact Trust Funding Solutions at 800-476-0438