Make sure to carefully read and understand the fine print in your contract with the invoice factoring company. Non-recourse factoring agreements are less common, but will often have higher transaction fees because of the additional risk the factoring company takes on. Invoice factoring is a saving grace for many industries, from transportation and staffing to small and mid-size businesses as well as government contractors. In fact, invoice factoring can offer welcome financial relief if you’re just starting a business, have bad credit, can’t get funding from banks, or are at risk of losing your business. Larger corporations often favor recourse factoring because, if a customer fails to pay, they can afford to return the funds they received from selling the uncollectible invoice to the factoring company. Cash flow forecasting is method of predicting your company’s future financial position based on anticipated accounts receivable and expenses.
- Call a Riviera Finance representative or request information, and we can help you answer these important questions.
- Once your customer pays, you repay your lender the amount loaned, plus fees and interest.
- Notification factoring, which is more common than the non-notification version, also adds risk to your customer relationships.
- And once Greg pays his invoice, the factor will have their money as well.
- Add unexpected expenses to the equation, and your company can quickly become insolvent.
- Banks that offer invoice factoring include the Southern Bank Company (through its division AltLINE), TAB Bank and Zions Bank.
Beyond the dry definition, it’s important to know what it isn’t, why business owners use factoring, and how it works at a high level. If you have further questions about factoring, our Complete Invoice Factoring Guide has the answers. While this isn’t a neat and tidy answer, the truth of the matter is it depends. The cost of invoice factoring will depend on the value, the invoice terms, the factoring facility you choose to work with, and even what type of industry you do business in. See our post on invoice factoring rates for more information about how factoring rates are determined. Our pricing page clearly outlines what you could expect to pay when funding invoices with FundThrough.
Recourse factoring vs. non-recourse factoring
Finding another trustworthy factoring company can also be difficult. First of all, because it’s riskier, factors will charge you more for non-recourse. The difference could be as much as a percentage point—say 3% of the amount you’re factoring, vs. 2% if you used the recourse method. And if factoring invoices definition your clients have a low credit score, those invoices might not be eligible for non-recourse factoring, since they’re a higher risk. With invoice factoring, a factor buys your accounts receivable (the money people owe your business), assuming a certain amount of responsibility for them.
When you fund an invoice with FundThrough, we’ll advance you the face value minus a small percentage as our fee. We do not charge any hidden fees like initial account setup fees, ACH fees, or processing fees. The reason there’s a demand for invoice factoring is because of cash flow issues caused by long business-to-business (B2B) payment terms. In many industries, it’s not uncommon for standard payment terms to be anywhere from 30 to 120 days.
Frequently asked questions about invoice factoring
If your progress on projects like physical expansion or investment expansion have slowed due to a lack of payments, the added funds will help you move forward without that financial burden. After you deliver a product or service to your client, you send them an invoice. The factoring company pays you immediately, using the invoice as collateral. Once the client pays the invoice, usually after 30 to 90 days, the transaction is closed. His services were of particular value in foreign trade, and factors became important figures in the great period of colonial exploration and development.