If waiting for 30 to 60 days is too much time to wait for you, then invoice factoring will work to your advantage. This is one of the types of factoring that eliminates the waiting period, and allows you more flexibility. By opting of this service, you are assured to get most of your collectibles before the allotted time it takes to get paid.
What Is Invoice Factoring?
Invoice factoring or recourse factoring is an efficient type of financing that allows you to sell your invoice to a company that provides this service. By doing this, you do not have to wait for the 30 to 60 day grace period your client is scheduled to pay.
Not only does this allow you to get paid earlier than expected, it also allows you to with the capital needed to pay employees, cover other fees, and make sure everything is running smoothly in your business.
In a nutshell, the factoring company is given the responsibility of collecting the amount on the invoice, while you are given an advance of your expected receivables.
What Are The Different Types Of Factoring
Generally there are two types of factoring.
These are:
Recourse Factoring
Recourse factoring refers to selling your account receivables to a factoring company. However, if the amount cannot be collected by the factoring company, you will be liable for the amount uncollected. These companies will advance the amount on the invoice, and is now authorized to collect the amount on the given date of release.
Non-recourse Factoring
Non-recourse factoring refers to selling your account receivables, just like in recourse factoring. The only difference is that you are not liable, if in any case that the factoring company is unable to collect the amount on the invoice on the given date.
Specialized Types Of Factoring
There are some industries that pose more financial risks to factoring companies. In other words, there is a big possibility that collecting the amount on the invoice will take more time or have setbacks. While other industries share relatively similar terms, there are certain industries that are given more complex terms.
Here are those industries:
Medical Industry
When it comes to billing insurance companies, it can take a long time to collect. At times, there are problems with collections. Although you do not get the same rate offered to other industries, you still get an advance and a different billing scheme.
Construction Industry
You do not have to wait till your project has been completed. The risk factor in this industry is the possibility of an uncompleted project. Although your rates and billing options are different, you still get a reasonable advance.
On average these industries receive an advance of 70% to 80%, compared to an average of 85% to 95% with other industries. Again, the reason behind this is the risk factor involved.
When it comes to making sure you get steady cash flow, and do not let other opportunities pass you by, these types of factoring have an assortment of options for you.