The major expense for most companies is the payroll and the expenses which are related to the same like compensation and insurance for the employees. Major service providers and staffing companies like information technology, management consulting and others have payroll as a major expense. Invoice factoring is suited for these types of companies in order to finance their business. There are many different types of characteristics of the form of financing which makes it appealing for the service providers and it also includes a number of practical options.
Characteristics of invoice funding
- Quick access to funds
Invoice factoring or payroll funding gives you immediate access to funds. As compared to any other type of borrowing, factoring is highly efficient and quick. Timing is crucial for such types of businesses because they experience rapid growth from even a single project and this is why they need payroll funding quickly. This is a line of credit which can be put into place within no time.
- Higher advance rates
The margins for service sector industry is squeezed and if you can get a higher advance rate which is needed to cover the payroll and all the other expenses. There might be many other lines of credit but the advance will be of a lower percentage of the outstanding account receivable than in case of an invoice factoring. You can get an advance of an amount which is as high as 80% of the invoice value.
- Funds grow rapidly
When you add new projects to your business, the line of credit grows in size and you can get higher advance rates. The invoice factoring line will increase as the consumers increase and there will be no cap on the amount which is available for your use.
- Over advances
There might be some cases where the expenses need to repaid before the project gets any client or has any accounts receivables. In case of over advances, the money can be used to pay the startup expenses. You can pay for the equipment as well as the initial payroll even before the invoice is issued.
The process of invoice factoring is quick and convenient. Based on the amount of invoices you have issued, you can apply for an advance against the same. When you put invoice factoring into place, you can make the payment of many other expenses and ensure that your company achieves success without having to apply for a loan from a bank or a financial institution. It will also keep your balance sheet at all times, you can have access to funds without showing it as a debt on the balance. You gain an advance against the invoices and do not have to pay off the same. You will receive the balance amount when the invoice is cleared and there will be a deduction of the fees charged for factoring. These fees are minimal and much lower as compared to the interest rates or the processing fees charged by traditional banks.
