6 Invoice Factoring Mistakes You Don’t Want To Make
Have you discovered that your company is quickly running out of cash? There are numerous ways to overcome this problem, but some methods are far better than others. For instance, you should most definitely consider checking out invoice factoring. This is a type of financial transaction in which your business will sell its accounts receivable to a factoring company. This will ultimately free up your cash and allow you to meet your expense obligations. Invoice factoring is great, but it can easily go wrong. Below, you will discover six mistakes that must be avoided.
Not Understanding Fees
While some factors will charge a simple, flat fee, most will not. Most will charge based on a weekly basis. The charges can rack up very quickly depending on how long it takes for the customer to finish paying their invoice. Make sure you’re completely aware of the fees, before signing on the dotted line.
Failing To Ask About The Upfront Advance Percentage
Pretty much all invoice factors will provide you with an advance for your unpaid invoices. However, you will probably not get the entire amount. Instead, you’ll likely get 80 to 90% of the amount upfront and the rest after the client pays. Be sure you know exactly what you’re going to get in advance.
Mistaking Invoices And Contracts
You must remember that invoices and contracts are different. Contracts cannot be factored. An invoice actually guarantees a payment obligation. A contract does not. When applying for factoring, you should definitely include the contract or purchase order. It will make a good supporting document.
Not Reading All The Fine Print
When it comes to any legal, binding agreement you always want to make sure that you are reading all the fine print. This is especially true when it comes to invoice factoring, and the reason for this is because there could be tons of fees the extend way beyond the factor rate. Unfortunately, not all invoice-factoring companies play fair, and it might even be an excellent ideal to get your lawyer to scan the contract for any additional hidden content.
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