Understanding Invoice Factoring Rates

A new business owner starts by creating a business plan and mapping out a cash flow diagram. It often starts with the accounts payable. Business owners choose a set of suppliers according to price, net terms, and reliability and then determine their total monthly cash payout.

The customer plan is somewhat different. Customers will carry similar agreements according to product price and net terms. However, while a viable company will generally meet their payment schedule, their customers may not. New business owners start by analyzing their industry and determining reasonable amounts for account receivable discounts. These discounts include the likelihood of late payments and defaults. They may also include the costs of collection.

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Where Do Factoring Companies Fit In?

Instead of managing cash flow around customer terms and payments, a business simply receives an advance from their factoring company. Your company is now able to pay vendors, meet payroll, purchase new equipment or raw materials and get back to business.

Put the Focus on the Customer

Conceptually, the problem with managing accounts receivable is that when the customer does not meet the payment schedule, the business suffers the most, at least in the short term. Factoring puts the onus for payment back on the customer. It relieves the business of having to dedicate resources to invoice management and waiting on terms.

Perhaps most importantly, the factoring rates associated with invoice factoring depend on customer creditworthiness, not that of the business. Small businesses, new businesses, and businesses in a volatile industry can benefit by factoring. This allows companies to take advantage of the enhanced cash flow of factoring where they otherwise would not qualify for alternate types of cash influx, such as a business loan from a bank.

Look for a Single Low Rate

An additional benefit is that the best factoring companies do not adjust the rate by invoice. They offer one low rate for all invoices in your portfolio. This can make accounts receivable one of the most manageable parts of the business accounting.

To find out the lowest factoring rates that Universal Funding can provide fill out a rate form today.

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