Financing the growth of your business can be a challenge, especially during a rough economy. If your sales of products or services to commercial accounts have created a cash flow shortage in your business, then your company can benefit from account receivables financing services from Touchstone Finance & Leasing.
Accounts Receivable Factoring
If your business provides a product or service to other businesses and uses invoices to collect payments, it might be eligible for invoice factoring. With this type of financing, your business sells its outstanding B2B invoices to a third party. The factoring company buying your invoices might advance 70% to 95% of their total value upfront. From there, the company collects the outstanding payments from your customers, deducts a factor fee (typically 0.5% to 5% per month, per outstanding invoice), and returns the difference to you.
Advantages and Disadvantages of Invoice Factoring
Invoice factoring can help your business access cash on outstanding invoices before they are due. Qualifying for this type of financing is often easier than qualifying for other types of business loans. However, the factoring company may review the credit of your customers during the application process to make sure those businesses are likely to pay as agreed.
Accounts Receivable Financing
Invoice financing works a lot like invoice factoring. Yet with the business funding option, you don’t sell outstanding invoices to a third party. Instead, your invoices serve as collateral to help you secure a cash advance, often up to 80% of the value of your outstanding invoices.
With invoice financing, you stay in charge of collecting from your customers. When your customers pay you, you repay the lender that issued you the cash advance.
Advantages and Disadvantages of Invoice Financing
When you back a loan using your invoices as collateral, your customers aren’t aware. Invoice financing can be somewhat expensive.
Invoice factoring vs invoice financing summary: