As you might guess from the name, single invoice factoring involves just one invoice as opposed to selling all your invoices or most of them to a factoring company. This situation might well arise when you have a customer who makes a very large purchase from you, and you need the amount of that invoice in your hands quickly. Rather than having to wait for 30, 60, or even 90 days to be paid that large sum of money, you might consider single invoice factoring so that you can have the money immediately.
How It Works
The money your customer owes you is an outstanding invoice that falls under the general category of accounts receivable. When you want to be paid the amount of that invoice as soon as possible, you can seek out a third-party known as a factor to purchase that one invoice from you. In the transaction, you would receive something like 80% or 90% of the face value of the invoice from the factor, who would then have the responsibility of collecting on that invoice. Once your customer pays the factoring company, the factor would then remit to you the remaining 10% to 20% of the invoice amount, after subtracting out their factoring fee.
Associated Fees and Terms
There is no actual interest rate applied by the factor to the money which is paid directly to you. Instead, a factoring fee of somewhere between 5% and 15% of the invoice amount would be charged instead. The amount of this fee will generally depend on the level of risk taken on by the factor, in terms of the credit-worthiness of your customer. That makes it important for you to shop around and find the most beneficial fees and terms that you can secure from a factoring company. Since these companies are not governed by the same rules and regulations that traditional lenders are, there is considerable variability in the charges and fees that they can assess for their products.
Thinking of Invoice Factoring?
We may be able to help you if you’re considering invoice factoring as a way of getting fast cash in your hands. Contact us at GP Solutions so we can discuss how it might work for you to get immediate funding.