Invoice Factoring
Explained
What Does Invoice Factoring Mean?
Invoice factoring and account receivable financing have been used interchangeably. Although they are not exactly the same, they both entail using invoice/accounts receivables to access funds quickly for working capital. Factors actually buy your invoices at a discounted rate, while banks require you to pledge or assign the invoices as collateral for a loan. In sum, factors buy; banks loan.
Lei Li
May 6, 2022
May 6, 2022
Purpose of Invoice Factoring
Invoice or accounts receivables are assets. However, they are not funds readily available to be used in your operations. As a business, you need the funds now. Invoice factoring and account receivable financing allows you to either sell for cash (at a slight discount) or use them as collateral to obtain loans so that you can grow your business by funding acquisitions, implementing marketing and promotions, or purchasing more inventory or supplies.
Invoice or accounts receivables are assets. However, they are not funds readily available to be used in your operations. As a business, you need the funds now. Invoice factoring and account receivable financing allows you to either sell for cash (at a slight discount) or use them as collateral to obtain loans so that you can grow your business by funding acquisitions, implementing marketing and promotions, or purchasing more inventory or supplies.
How Does Invoice Factoring Work
The factor will advance you around 75% to 95% on the invoices they factor and hold the other 25% to 5% in reserve. The factor pays you back the reserve as your customers pay their invoices. Typically, you end up with 97% to 99% of your total accounts receivables after all payments are collected and the 1% to 3% factoring fee is taken out. Most banks only loan you 75% to 85% of the value of your invoices and they charge you an interest rate on the amount of the loan. This rate is usually higher than other types of traditional business bank loans.
Advantages of Invoice Factoring
With American Credit invoice factoring, you do not lose control of my billing and posting. You continue to create your invoices, and we post the payments when we get paid. Also, you determine your factoring schedule based on your cash-flow needs and your invoices. You can even qualify for factoring with a compromised credit history. We look at the credit history of your customers to determine if and when they pay their invoices.
The factor will advance you around 75% to 95% on the invoices they factor and hold the other 25% to 5% in reserve. The factor pays you back the reserve as your customers pay their invoices. Typically, you end up with 97% to 99% of your total accounts receivables after all payments are collected and the 1% to 3% factoring fee is taken out. Most banks only loan you 75% to 85% of the value of your invoices and they charge you an interest rate on the amount of the loan. This rate is usually higher than other types of traditional business bank loans.
Advantages of Invoice Factoring
With American Credit invoice factoring, you do not lose control of my billing and posting. You continue to create your invoices, and we post the payments when we get paid. Also, you determine your factoring schedule based on your cash-flow needs and your invoices. You can even qualify for factoring with a compromised credit history. We look at the credit history of your customers to determine if and when they pay their invoices.
Disadvantages of Accounts Receivable Financing
As compared with invoice factoring, accounts receivable financing is a loan. You have no credit protection with the bank since you still own the accounts receivable invoices. A bank loan is a liability on your balance sheet or affects your debt to equity ratio. As you can see the better choice is invoice factoring, as it is not considered a loan, but a sales transaction. It does not show up on your balance sheet as debt. Please give American Credit Invoice Factoring a consideration for your invoice financing needs.
How American Credit Can Help You
American Credit provides fast, simple, and convenient invoice factoring. You will likely be pre-qualified over the phone, and asked to submit an application and the necessary documentation. Once you submit the required paperwork to us, it can take as little as 24 hours to get funded. Normally, the funds are wired to your account electronically. We can easily provide you with a facility that has no minimum requirements.
As compared with invoice factoring, accounts receivable financing is a loan. You have no credit protection with the bank since you still own the accounts receivable invoices. A bank loan is a liability on your balance sheet or affects your debt to equity ratio. As you can see the better choice is invoice factoring, as it is not considered a loan, but a sales transaction. It does not show up on your balance sheet as debt. Please give American Credit Invoice Factoring a consideration for your invoice financing needs.
How American Credit Can Help You
American Credit provides fast, simple, and convenient invoice factoring. You will likely be pre-qualified over the phone, and asked to submit an application and the necessary documentation. Once you submit the required paperwork to us, it can take as little as 24 hours to get funded. Normally, the funds are wired to your account electronically. We can easily provide you with a facility that has no minimum requirements.