Factoring and invoice discounting are extremely useful and powerful financial instruments to unlock capital without needing to take out complicated loans. They are distinct but similar financial products which involve the sale of unpaid invoices to a third-party financial company to facilitate efficient cash flow and maintain solvency in hard times. In this article, we will explain some of the key benefits of factoring to help explain why it might be worth considering it for your business.
When a company agrees to factor your company, they are making an agreement to manage your sales ledger. Normally when you complete a repair job, the invoice will be sent off to the debtor or insurance company and you may spend days, weeks or months awaiting their payment. In bad situations, the debtor may dispute the payment or neglect to pay the full sum. With a typical factoring arrangement, you will be paid a sum of greater than 90% of the value of the invoice the day after you issue the invoice by the factoring company. That is immediate cash for you to reinject into your business activities. Additionally, you won’t need to worry about the next step, because the factoring company is then responsible for chasing up payment with the insurer.
Small Processing Fees
Factoring and invoice discounting companies naturally don’t work for free. There is a small fee associated with the service of providing the immediate cash. It varies depending upon the size of the invoice and the type of arrangement. Factoring is typically a little bit more expensive than invoice discounting, because factoring involves taking on the risk of debtor non-compliance with the invoice. The key benefit is that the fees are small. A good invoice discounting company will charge less than 2% of the value of the invoice for the immediate cash.
Keep the Business Growing
Everyone has different skills, and financial mathematics are not everyone’s cup of tea. If you are an auto repairer, you might be able to diagnose engine problems from twenty meters with the radio on in the background, but spreadsheets of financial numbers might as well be written in a foreign language. With a quality factoring arrangement, you can utilise the instant cash injection from selling your invoices to keep the business growing and generate happy customers.
Talk to Working Capital Finance About Factoring Today
At Working Capital Finance, we are industry leading professional providers of factoring services for the auto repair industry Australia wide. We only serve auto repair companies and have a solid understanding of how these business operate. If you own such a business and think our services might be of use to you, please get in touch with one of our professionals today by calling 02 9968 2328 or contacting us online.
Please note: The content of this article should be considered informational and not construed or considered to be actual financial advice.