Invoice factoring is the process of selling a company’s invoices at a discounted price to a third party and is often used by companies that have an immediate need for cash flow and are unable to wait for the money that they are due through the invoices.
In these cases an invoice factoring provider will provide that immediate cash flow so that they can benefit from the long term cash provided once the invoices are settled. It is quite a complex procedure so before you consider it here are 3 questions you should ask a invoice factoring provider.
- What percentage of the invoices is the factoring provider willing to advance?
This is perhaps the most important question that should be going through your head when you factor your invoices because if the percentage is too low to cover whatever it is that requires such immediate access to cash it is probably worth exploring other options. After all, the aim is to improve your own cash flow through their use so make sure you are working with a provider that can actually give you what you need before settling on them. For more on this see www.invoicefunders.co.nz/what_is_invoice_finance
- How will the provider communicate with your customers?
This is also extremely important as poor communication could lead to you losing the customer altogether. Ensure that your provider sticks to high quality customer communication guidelines. In an ideal situation they should also be able to work to your own company guidelines to ensure that your customers are still experiencing the level of service that they are accustomed to.
As part of this line of questioning make sure to find out how they handle customers who are slow when it comes to paying off their debt. If their procedure is too heavy-handed you may wind up experiencing further problems that could have been reduced through better procedures. Make sure that you requirements are met in this regard to ensure the long term future of your business is secure in the hands of a third party.
- What is the notice period if you wish to end the agreement?
For many invoice factoring may well be seen as a short term solution to cash flow issues before their company gets back on its feet. If this is the case you will want to make sure that there is a clearly defined notice period in place so both you and your provider know where you stand.