Companies looking to improve cash flow outside of the normal 30-to-60 day net pay should, perhaps, look into invoice financing.
Invoice factoring allows a company the ability to cover all of their expenses by advancing them funds due to slow-paying customers.
Factoring transactions are structured from factoring companies purchasing invoices from other companies. An advance is paid out as soon as you sell the invoice to the factoring company. The advanced amount depends on your type of business, your track record, the risk conditions of your customer and their payment history.
Most advance payments start at 80 per cent of the invoice. However, someone in the transportation industry using freight transaction can receive up to 90 per cent of the invoice. Staffing companies can also receive up to 90 per cent as an advance.
The factoring rebate is normally the 20 per cent remaining when the advance is 80 per cent or ten per cent when the advance is 90 per cent, minus any financing fees. After the fees have been taken out, the factoring company then settles the transaction.
Factoring companies can purchase your invoices with or without recourse. With recourse a factoring company can sell back your invoice for any reason regarding non-payment for invoices not paid within 90 days.
A non recourse transaction is somewhat different. The factoring company can absorb the loss of an invoice for non-payment.
If a company has filed bankruptcy or declared insolvency, the factoring company can engineer its transaction as it sees fit. Your contract will help you familiarise yourself with the terms and conditions set by the factoring company.