Important Things to Know About International Factoring Association
Factoring is also known as accounts receivable financing or invoice financing. It is a financial strategy that will allow businesses to have capital denoted to their invoices before the due payments of their customers.
The reason why businesses get an advance loan is to somehow establish a contractual agreement. The process of selling invoices to third-party companies is called a factor, and that’s how the international factoring association works.
How Invoice Factoring Can Boost Your Business
For a small business, invoice factoring can help you in a lot of ways. Small business owners such as freight brokers, truck drivers, and many more.
How Does Invoice Factoring Work?
Invoice factoring or also known as account receivables factoring is a method in which you sell your customer’s unpaid invoices to a factoring company, whether it can be money factoring companies, transportation factoring companies, or trucking factoring companies. It all depends on what company you’re in.
What factoring does is reduce the waiting time for you to receive your customer’s invoice, most invoices can go for 30, 60, or even 90 days. But with a factoring company, they purchase the invoice but you get around 70 to 90 percent of that entire invoice upfront.
When a factoring company receives your customer’s payment, the caveat is, you are getting the remainder of the invoice, minus a factor fee. Don’t worry, there are no hidden fees associated, you will be indebted like most business loans. In fact, you can even record it for your own personal documentation as these are important transactions your company makes.
Why Would You Use Factoring?
Like most questions such as what is a factoring company, the best way to tackle this one is a few details written below. Let’s learn more about why small businesses lean towards more on invoice factoring businesses firsthand.
• Receive Money Quick
As we’ve mentioned earlier, you can receive money without waiting for your customer’s invoice. The factoring company will pay up for your customer’s invoice but will get a factor fee for this transaction. This is quite helpful if you are a small business that needs outright cash to finance other aspects of your business. It is also one of the primary reasons why small businesses lean on the international factoring association.
• It’s Not Your Credit Score, It’s Your Customer
Traditional bank loans rely on your personal credit loan to check whether you are accepted for their loan. On the other hand, factoring companies rely on your customer’s personal credit score to strike a deal. Although they might not look into your personal credit score, they will most likely check your customer’s personal credit score.
• There’s Little Paperwork To Be Done
Most banks and lending companies will require you a substantial amount of paperwork to get it done. Your involvement to help you get a loan in these companies can be quite hassle on your part especially if you have a small business that needs to run. On the other hand, business invoice factoring is a streamlined process in which you don’t have to constantly provide valuable documents and information to get things on both parts. Plus, you get to factor whenever you needed without even starting from scratch.