Invoice Factoring: Not Just for the Big Fish
Invoice factoring, contracting to accept less than full face value for invoices in return for immediate payment, is mistakenly thought to be an option open only to large companies. True, some businesses are too small for consideration by factoring companies, but many that were formally deemed to small are now considered perfect candidates. Usually, companies that sell to other businesses are prime candidates and many service industries and e-commerce companies find invoice factoring particularly beneficial.
Companies with primary assets that are the monies owed them have particular difficulty obtaining loans, however, with invoice finance the invoices serve as collateral. The lender, or factor, takes charge of the invoices and assumes responsibility for any actions necessary to secure payment. The client company’s customers pay the lender and any receipts, above the factor’s agreed fee and the upfront payment, are sent to the company.
Regarding the factoring contract, there is a limited time period for collection. If an invoice is not paid within the prescribed time, generally 90 days past due date or 120 days from invoice date, the invoice reverts to the client company. However, assuming a non-recourse fee has been paid the company will not have to make repayment.