Single invoice factoring is one of the many methods that allow companies to draw additional cash and capital. It works by advancing the value of receivables prior to their maturity and therefore collection.
It is deemed popular especially for immediate use and where cash is needed within a short amount of time. It is likewise chosen for its zero debt and no collateral requirements.
But to truly benefit from single invoice factoring, one has to have a firm grasp about its proper use. That said, here are some do’s and don’ts to help one get by.
- Understand that there are two types to it. Yes and they are factoring and discounting. The two offers the same benefits but they differ by a thin line. Factoring is selling the rights to collect against the invoice while discounting uses them as a form of security, both in exchange for an advance of its value. The former transfers the collection burden to the provider while in the latter, the company retains it.
- Know your receivables. One has to choose the invoice to use. After all, this is a single or spot procedure that only involves one specific receivable that has been chosen by the company themselves. Therefore, it is one’s job to assess and determine their creditworthiness so as to get an approval.
- Do remember that you’ve got responsibilities too. In discounting, one has to still perform collection and then repay the provider once the customer pays their dues. When choosing a recourse factoring arrangement, keep in mind that one has to buy back the receivable in case the customer defaults at maturity date.
- Don’t jump at the first provider you see. Like anything else, perform adequate amounts of research to find out which providers offer the best services at a fraction of the cost. Read feedback about them and don’t be afraid to inquire.
- Don’t use it one after the next. It is a onetime transaction which makes the fees very cost-effective as they apply to only one invoice at a time. However, if the company finds the need to use the method repeatedly to the point that majority or all of invoices are factored or discounted, a bulk arrangement would be better.
- Don’t assume that it’s the same for all providers. There are standards to what single invoice factoring is and what it does. However, certain terms and policies can differ from one financial institution to the next for instance when it comes to rates and fees.
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