Invoice Factoring- what, why, who, how.
Factoring is a bit of an unknown in Australia- perhaps you have heard of it but discounted it as a bit of a novelty. Folks we have spent the last few days researching it to within an inch of its life and are here to tell you that Invoice Factoring is very real and can be an absolute godsend for a small business that extends credit. Basically, Invoice Factoring companies “buy” your invoices- they pay you between 80% and 90% of the face value up front, and then seek to recover the remainder from your customer themselves at which time they pay you the balance, minus their fee of course. Now I know what you are thinking- this sounds too good to be true- a guaranteed 80% to 90% of every single invoice? Where do I sign!!! It is only when you delve in a little deeper does the true picture become clear- your invoice must be within terms- ie. it must not be due yet. Your customer must also have a strong credit and trading history- after all, the factoring company are the ones taking all the risk- you also must be comfortable with someone else contacting your customer on your behalf which may make your customers feel a little uneasy having to deal with a third party that isn’t you. Having said all this though, we think Invoice Factoring is a fantastic way to guarantee cash flow, so if you are in a high-risk or volatile industry, where invoices in the tens of thousands of dollars are the norm, then it might be worth seriously considering. If you have reliable-paying customers however and tight profit margins, then the cost of doing so may negate any benefit. There are plenty of companies that specialise though, so just Google “Invoice Factoring Australia” and see how you go. Cheers