As a business, you need to maintain funds to keep things smooth and running. However, many companies find it hard to get short-term loans without creating a heavy financial burden on the firm. Invoice factoring is an invoice financing option that can help companies quickly gain funds without creating debt. However, it is not without shortcomings.
Here is everything you need to know about invoice factoring.
What is invoice factoring?
Invoice factoring is a financial arrangement through which you can turn your debts or invoices into cash. When you sell your unpaid invoices to an invoice factoring company or a factor at a discounted rate, it is known as invoice factoring. The company pays you money against the invoice, and then they collect the payment from the customers when the invoice becomes due.
There are two types of invoice factoring:
- Recourse: In recourse factoring, the business or the vendor bears the risk. If the customer does not pay the invoice, you will have to pay the money to your factor.
- Non-recourse: In non-recourse factoring, the factor bears the risk, and you don’t have any liability if the customer refuses to pay the invoice.
Most factoring companies use recourse factoring. Very few financial lenders opt for non-recourse factoring, as the risk is more significant.
What are the benefits of factoring your invoice?
There are several benefits of small business invoice factoring. Some of the most prominent ones are:
Quick availability of cash: You can quickly arrange finances for your business with invoice factoring. You don’t have to wait for approvals, valuations, and other complexities involved with loans and other debts.
Beneficial for startups and new businesses: Most financial institutions check your track records and ask for collateral before lending you money. However, if you are just starting, you won’t have a track record or a lot of assets to put on collateral. With invoice factoring, you don’t need these things. You just need unpaid invoices and trustworthy customers.
Personalized services: Certain invoice factoring companies understand the benefits of using dedicated managers for business, making the entire process more efficient and smooth. You can get the benefits of personalization, and your customers will know who they are dealing with.
What are the disadvantages of invoice factoring?
There are some cons to using invoice factoring for your business if you are not careful. They are:
It can be expensive: If you are worried about the fees the factor takes on discounting these invoices, maybe it is not the best option for you. You need to be careful about the late fees and any other charges the factor includes in the cost.
Unhappy customers: If you have sensitive customers, they may not respond well to being contacted by a factoring agency for invoice payments. It can lead to loss of customers sometimes.
About Ignite Business Group
If you are looking for a reputable and reliable invoice factoring company in the UK, Ignite Business Group Ltd should be your first choice. With over 25 years of experience in the field, we can take care of all your invoice troubles. You can quickly get your invoices discounted or factored in by providing essential information and invoice copies here. Reach out to us at 01332 896 020 or fill out our online contact form to know more.
