Running a business or company comes with many big challenges. One of the problems the business owners face is the slow-paying clients. They obviously pay in the long run but it often hampers the immediate cash flow requirement. If the client does not end up paying for about a month or several weeks, it causes serious financial problems for the company. Immediate cash is required by the businesses to maintain and carry out their daily expenses such as buying fuel, paying salaries to their workforce, buy raw materials, fix any repair and damage, etc. At that time, you need a financial solution and then the best solution is the Invoice factoring company.
Freight invoice factoring or accounts receivable factoring or bill freight factoring is a financing option that allows the companies to receive immediate cash against their open and unpaid freight invoices. In this factoring method, an immediate amount of capital is paid to the business to operate their business, while the factoring company keeps the bill with him and becomes liable for collecting the bill amount from the client of the company.
There are two types of freight factoring services. On is the recourse method and the other is the non-recourse method. In a recourse method, the factoring company returns the bill to the company if the same is not paid by the client within a specific period of time. It is a less costly factoring method but involves risk because if the client of the business does not end up paying the amount against the bill, the company will have to bear the loss. In a non-recourse transaction, which is more expensive, the factoring company bears the loss when the client goes bankrupt and does not pay.
The accounts receivable factoring companies work on a common method. Firstly, they receive an application from the business for a financial transaction. Then the unpaid bills are presented to the freight bill company. The invoice factoring company then makes the payment of at least 90% of the bill amount to the business so that they can carry out their expenses. The remaining amount is paid later when the factoring company receives the payment from the clients.
Sometimes, when the invoice amount is not too much, and then only a single installment transaction may happen where a 100% of the amount is disbursed in one go. The fees of the Invoice factoring depend on factors like volume of the sales, the period of the transaction, credit-worthiness of the client, etc. The factoring companies normally charge a fee ranging from 1% to 3% per month. There can be various other clauses and terms and conditions too.