Companies having trouble of unable to obtain the old bank loan option can finally find a solution with the invoice california factoring companies. When getting financing from conventional banks generally requires commercial borrowers to have 2 years of operation and show a profit. The banks tend to approve loans secured by substantial assets like inventory, machinery, real estate, and equipment. To work with the factoring companies are less restrictive. When selling invoices, it is often called factoring. It means that it doesn’t incur any debt. Therefore, there will be no monthly payments needed. Also, it enables to control the cash flow by determining when and how much to factor.
Newer and small growing companies or with tax liens, even bankruptcy, can still qualify for the invoice California factoring accounts. It makes factoring companies a valuable source of financing for many businesses.
How does the invoice factoring work?
The factoring companies buy freight bills or account receivable at a discounted rate. The company sells the accounts receivable in exchange at a cheaper value for quick money than to wait the usual 30 – 45 days for these invoices for getting paid. After the delivery of your product or service and make an approved invoice, the factoring companies provide the money within 24 hours. Therefore, when working with factoring companies help speed up the cash flow in a business. The introduction of cash can help meet the financial obligations. For instance, the money can be used for the following:
- increase working capital
- pay taxes or bills
- pay upfront for supplies or equipment
- early payment discounts
The factoring company pays 80% of the invoice value upfront. The remaining value is deducted with the factoring fee after the payment receives from the client. You can determine the factoring fee by the combination of the credit-worthiness of the following:
- customer base
- average terms
- invoice size and number
- factoring volume
Factoring companies can structure the fees in several ways. But, the rate paid generally works out for 3-5% of the invoice value. Remember that financing fees fluctuate according to the performance and creditworthiness of the individual receivables.
How it operates
Factoring companies help small big financial service firms to large banks. Some of these factoring companies require a minimum per invoice before they do business with you. These factoring companies work as the middlemen. There are two basic requirements that they ask from you to qualify for their form of financing, such as:
- No existing liens on the accounts receivable. It means that they want to have no other company that will claim payments once they do business with you.
- Customers should be creditworthy. Factoring companies depend on the ability to collect the clients’ invoices with no problem.
All these are in favor of your business if you face issues regarding financing. Although it is good to have a direct transaction to the banks, still the banks are not that easy to borrow an amount of money. Therefore, factoring companies will do that for you. You will not have to worry now about the financing as they would do the work for finding the financing on your behalf.