The practise of selling unpaid bills to a factoring company at a discount is called factoring invoices (or accounts receivable) or factoring in receivables. Invoice factoring companies and commercial mortgage lenders who provide goods or services to other companies (or the government) may use the factor to sell their surplus inventory to get fast cash flow.
Essential Concepts Germane to Invoice Factoring
- Working of Invoice Factoring
Invoice factoring companies do not need an accounting degree to comprehend the factoring of the invoice. The process starts with the delivery of creditworthy goods or services to customers. In a month or two, these people may reimburse their debts. The problem is that right now you need money.
The second step is to contact a factoring company. You may sell your outstanding invoices for a small fee, usually about 3% of the amount of the invoice. As soon as the factor verifies that the accounts receivables are real and authenticated, you receive a cash advance. You have full control over how that money is spent.
- Invoice Qualifications
To qualify for the invoice factoring and commercial mortgage lenders, Invoice factoring companies need to have a few things in place. Personal credit may or may not play a role in addressing the above and the example I gave. In most instances, the lender looks at your company credit when you request financing for your company.
There are eight typical things you need to have to qualify for invoice factoring according to commercial mortgage lenders:
- An application of factoring. You will need to complete out a factoring application. In general, this contains your company information (i.e. address, number) as well as your average sales and invoicing volume.
- A report on accounts receivable ageing. Also known as the timetable, this report displays by date credit memoranda, notes and outstanding bills.
- A copy of your Incorporation Articles. That is what you got when your company was formally established. The Articles of incorporation show to be legal for your company.
- Factor invoices. These are your unpaid bills – those that you wish to sell to the manufacturer.
- Loan-worthy customers. Factoring businesses desire outstanding customer bills they are confident they are paying them. With delinquent accounts from large companies with excellent credit and history, your chances of invoice assessment rise.
- A company bank account. Companies that factor only deposit money on a corporate bank account – not personal – and do not cash them out. If you provide any of these items, verify the company’s trustworthiness. That stated, to receive money, you will require a business bank account.
- Number of tax ID. In most instances, this is your social security number, but generally you want to see your company EIN – Identification Number of Employer.
- A way to identify yourself. To identify you as the company’s owner.
Invoice factoring may be used for your benefit, especially if you are short on money. Commercial mortgage lenders is intended for small businesses who need require cash flow to address urgent financial difficulties.