Factoring, known as factoring, is one of the methods used to maintain cash flow, and day by day is growing in popularity. Companies that use this method emphasize having most of the money now instead of everything later … It can take time to put it together on an invoice, so when a company uses the factoring technique its accounts receivable, it gets its Faster money and without the hassle of collecting.

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When companies generate invoices for work done, it usually takes a while before they get paid. Meanwhile, entrepreneurs and entrepreneurs need resources to keep working. The factoring companies acquire these invoices and pay cash for them, in exchange for a commission. For the Invoice factoring pays you upfront for the invoice amount this is important.

  • In many cases, the entrepreneur sells a product or a service but the payment is not immediate. Even if an invoice has been generated, certain contracting companies tend to pay later. Sometimes it may take a month or two before the payment is made. Meanwhile, the company must continue to operate, must pay staff and pay for supplies.
  • In these cases, there are certain companies, called factoring, that acquires these invoices and pay cash for them. The benefit for the small business is that it receives resources immediately to continue working, although a commission is paid for the service. The factoring companies, on the other hand, earn the commission and subsequently recover the investment when the contracting companies pay.

Many companies have discovered that factoring has improved their profits, and they have stayed with this process for many years.

There are several aspects that you should consider before making factoring your means of financing, here we explain them:

  1. How much does it cost?

Obviously, a company will not receive all the value of the invoices that are taken into account as factoring. In addition, the amount paid to the factoring company is often a negotiated price that is based on a number of factors. It usually comes in the number at around 65% to 90% of the debt receivable. This means that if a company is owed $ 1000, a company will pay between $ 650 and $ 900 to achieve the take-off of the company.

Some factoring fees are flexible depending on the account that is for sale. For example, a company can obtain more favorable factoring to deal with debts of more than $ 100,000 than for those under $ 10,000. As a last point, it is important that the amounts and changes are negotiated, and the business owner must read carefully all the agreements made with the factoring company.

  1. Determinants of the rate

When the time comes to negotiate that kind of change, it is important to know what influences the rate in the first place. As with any other service, there are considerations that affect what a company is willing to offer you.

On the one hand, the financial stability of its customers is a factor. What does that mean? It is a way of saying that a factor is willing to have a lower percentage if it knows that its customers can pay their bills. If your customers have a poor credit and bad reputation to pay, then you may have to pay extra for that risk.

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