All payments will go to a designated lockbox account, which is set up by the factoring company. The notice states that your business has assigned the factoring company as the entity to receive future payments for invoices you issue. The factoring company may also send a “notice of assignment” to your invoiced clients. The advanced amount will depend on the size of your transaction, your industry, and other risk parameters. On average, the advance rate is 80% of the value of the invoice, also known as the borrowing base. Factoring Company Issues an Advance on the InvoiceĪfter submitting your invoices, the factoring company gives you an initial advance based on the agreed-upon advance rate. It’s best to use customers with good payment history for invoice factoring when possible. One of these fees, the discount rate, is determined in part by the creditworthiness of your customers. The agreement will set an initial maximum dollar amount that you can borrow and will list fees and service charges that will apply. If the factoring company approves your business based on its research, it will enter into an agreement with you. It’ll also conduct due diligence on your invoiced customers to see if they’re good credit risks. The factoring company will determine if you meet its eligibility criteria to receive financing. Prior to receiving invoice factoring financing, you will need to find a provider you want to work with and go through the application process. Sell & Assign the Invoice to a Factoring Company To qualify for invoice factoring, these invoices must be payable within 90 days by the customer. Once you have provided products or services to your business-to-business (B2B) or business-to-government (B2G) customer, you issue an invoice for them to pay. The FundThrough application process is simple and entirely online. FundThrough offers a fast application and invoice assignment process that can sync seamlessly with your QuickBooks account. Small businesses that need to factor invoices of up to $5 million will benefit from FundThrough. Your business’s customer repays the factoring company, which distributes the remainder of the invoice, minus fees, back to you. The factoring company will offer your business an advance of approximately 80% of your invoice upfront. Businesses that invoice other businesses or government entities can assign any unpaid invoices to a factoring company. Invoice factoring is one way to receive funds quickly when your business faces a cash flow crunch.
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