How Buying Invoices Works
Author: Henry Byers

If you have a problem with cash flow, you might consider
finding a company that engages in buying invoices to get you on
the right track again. Often, through no fault of their own,
small and large companies find themselves in a bind because
they don't have enough cash to meet debt payments, to pay
employees, or to invest in needed materials and manpower in
order to bid on lucrative, time-sensitive contracts. In these
cases and some others, companies buying invoices from you may
be able to help.

Buying invoices is also called factoring. A company, or factor,
engages in buying invoices from another company at a discount,
taking on the responsibility of collecting payments due.
Through this process, the company selling the invoice gets
immediate cash flow, and the company buying invoices stands to
make a profit.

Most invoices are factored at fees starting at around 1.67% of
the total principle for each ten days left in the payment due
terms. For instance, if you have invoices that come due in
thirty days, the factoring company would buy them from you at a
5% discount, and thus make a 5% profit for a thirty-day
investment. Fees are predicated on the creditworthiness of your
debtor, not you; thus, a company with a very good record of
paying its debts on time and otherwise appearing sound would
get you the best terms. If you have a company without strong
credit that owes you money, you may find their invoices
factored at rates of more like 8% to 10%. Generally, companies
that buy invoices will limit the total amount of invoices the
hold from you to no more than $100,000, but have no minimum
amount.

If you have an invoice in the amount of $200,000, this does not
mean you will not be able to find a factoring company that can
help you. Instead, the company buying invoices may advance your
company a hundred thousand dollars, but when they collect the
debt, the will then pay to you the entire advanced amount you
qualify for. In other words, you can factor a portion of an
invoice if you don't need to factor the whole thing.

When companies are buying invoices, you can count on at least
three parties being involved. The first is the seller of the
invoice which is your company. The second is the payor of the
invoice which is the company you have done business with that
owes you money. The third is the broker/funder buying invoices.
This third party may be a separate broker and funder, or it may
be one company or individual acting as both. The broker would
arrange the transaction, and facilitate your receipt of the
funds advanced in a timely manner. The funder is the party
actually buying invoices; they would use a broker to find
appropriate invoices to buy. Brokers who arrange the
transaction but who don't fund the transaction generally earn a
commission on the transaction.

Typically, the funder buying invoices is the chief risk taker
in the transaction, and receives the largest share of your
factoring fee. The broker arranging the transaction would
receive around ten percent of the fee charged for buying
invoices.

When you've found a company buying invoices to work with, it's
generally a good idea to maintain the relationship with them.
If you find yourself needing cash flow in the future, these
companies are much more willing to work with those they've
funded successfully in the past, and may even offer you more
favorable terms.

Companies buying invoices are generally those with large cash
on hand totals, like insurance companies and federally-insured
banks. You may also be able to find companies buying invoices
overseas, particularly in resource-rich companies like those in
the Middle East.


About The Author: Henry Byers, Retired Accountant and Factoring
Services advisor at eCPA Group LLC (
http://www.invoice-factoring-services.info ) publishes other
articles related to Factoring Services at
http://www.factoring-invoice.info and
http://www.cash-flow-factoring.info