How does factoring work: a crash course in invoice factoring

ultimate-questionIf you were told you could improve your company’s cash flow management, speed up your receivables, stay current on payables and have funds to expand your business – all without taking on more debt – you’d probably think it’s too good to be true.

But that’s the case with invoice factoring.

Still, many business owners who could benefit from factoring have not taken the time to understand how factoring works and how it can help them.

The process appears more complicated than it really is. In fact, the basics of invoice factoring can be explained in just a few minutes.

How Invoice Factoring Works

The factoring company (MP Star Financial) buys your customer invoices from you, and then quickly provides you with funds – usually the same business day. A factored invoice is not a loan, so your company does not take on more debt. Here’s the process:

  1. You sell your services or products to your customer, as usual.
  2. You invoice the customer as soon as the services are delivered.
  3. You present the invoice to MP Star. The invoice is purchased and you are immediately provided an advance payment, usually 80% or more of the invoice amount. The remainder – about 20% – is held in reserve.
  4. MP Star Financial is paid by your customer. After payment, the reserve, less transaction fees, is sent to your company.

How does factoring work? That’s pretty much it.

The key here is that you get the bulk of the money owed to you almost immediately, to make sure you can cover the expenses that come with running your company and also have the capital you need to grow.

There is some preliminary paperwork that MP Star Financial will ask you to complete, and credit checks will be run on the customers whose receivables you would like to factor, but all this can be completed in just a few business days.

In terms of your customer relationships, probably the only change they will notice is a new address for mailing payments.

What Factoring Receivables Costs

Most business owners and operators new to factoring are surprised at how reasonable the fees associated with MP Star’s services are, especially when compared to the costs incurred by having to wait sometimes 60 days for a customer payment.

As noted before, the fees are deducted from the reserve held until the customer pays the invoice, and typically range from 1½% to about 3½% of the invoice amount.

The most important thing is to make sure you understand exactly what you will be charged. MP Star Financial doesn’t hide fees or surprise you with unexpected charges.

The Benefits of Factoring Receivables

The most obvious benefit of factoring receivables is not waiting for your customers to pay you. But there are other benefits, too.

  • Business owners say collecting on receivables (and cash flow management) is one of their most difficult and time consuming tasks. A factoring program from MP Star Financial gets you out of the receivables business and lets you focus on serving your customers and running your company.
  • No additional debt! Credit lines with banks can take a long time to establish, are usually inflexible, and are generally limited by what your company can assign as collateral. When factoring receivables with MP Star, you get fast service and flexible financing.
  • Factoring lets you take advantage of business opportunities on a timely basis. Because you’re not waiting to be paid, you can fund equipment upgrades, purchase materials and supplies, and hire new staff as soon as you need to. Factoring receivables can put you back in charge of your company’s future.

Ready to start factoring receivables?

There’s much more information on invoice factoring on MP Star Financial’s website. To get started, complete the short form on the home page, and you will be contacted right away. Or call (800) 833-3765, extension 150, for immediate information.

Stop waiting 45 to 60 days for customer payments! Find out how invoice factoring with MP Star Financial can put you back in control of your cash flow management. Call (800) 833-3765, extension 150

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Since 1995, MP Star Financial has helped more than 1,000 businesses and people like you resolve cash flow issues.

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