Spot factoring - This allows you to factor invoices individually.Įvery business owner should thoroughly understand the role that invoice factoring can play in their financial journey and make a decision that will best suit their needs.Selective factoring - A type of invoice factoring where they bundle smaller amounts together or are individual rather than a large amount or the entire sales ledger.The most common payment terms are 30, 60, and 90 days but this can vary depending on the factoring company and customer’s contract. Payment terms - Refers to the agreed timeframe that the customer has to pay off their invoice.This creates a lower risk for the business owner but typically comes with a higher factoring fee. Non-recourse factoring - If the customer fails to make the invoice payment, then the factoring company will take responsibility for the loss, not you.Disclosed factoring - The customers are made aware that they are dealing with an invoice factoring company.Disbursements - Additional fees charged by the invoice factoring company, such as credit checks, admin errors, receiving letters, expedited bank payments, etc.Confidential factoring - Keeps the factoring company completely confidential from the customer who owes the invoice.CHOCC factoring - CHOCC stands for Client Handles Own Credit Control, and the business owner is responsible for collecting payment rather than the factoring company.Any unpaid debt will be recoursed back to the business owner, sometimes along with refactoring fees. Approval period - The agreed-upon period of time that the customer will pay off their invoice.30 days later, they collect the invoice from your customer and pay you the remaining balance ($1,900). The invoice factoring company advances 80% of the invoice ($7,600) so you can have cash in a few business days. Since you need the cash immediately to start on your next job, your invoice factoring company buys the invoice off for $9500 cash with a 5% factoring fee ($500). Let’s say you own an HVAC company and just installed two new AC units for a local retail store, creating a $10,000 invoice which your customer agrees to pay off within 30 days. Once the invoice is paid, the factoring company will release the remaining 10-20% of the invoice to the business owner, minus a factoring fee.The factoring company is now responsible for collecting payment from the customer.
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