Factoring & Invoice Financing
Understand what traditional factoring is and how Mynt is different.
How factoring works
The point of invoice financing, or factoring, is to free up capital and improve cash flow by using unpaid invoices as security. The most common arrangement is that you sell unpaid invoices to a financing company which is then paid by the end customer. Typically, you can receive between 50-95% of the invoice’s total value immediately, instead of needing to wait on your customer to pay the invoice.
When is factoring a good option?
Factoring tends to be a good option for companies that charge their customers using invoices and who needs cash quickly to balance their cash flow. Factoring usually allows companies to gain access to larger sums than a conventional bank loan as the invoice is used as a security.
Companies that use factoring can also offer better payment terms to their customers as they know they can sell the invoice and receive payment immediately instead of needing to wait for their customer to pay the invoice, which can take a substantial amount of time. Smaller businesses can, when dealing with larger companies, often be forced to give generous payments terms as it is difficult to negotiate with large customers, and factoring can in those cases improve cash flow.
Factoring has become a popular option for small and medium sized enterprises during the last couple of years as it can be incredibly difficult to grow a business while needing to wait months between completing the work and receiving payment. Unexpected expenditures can also severely impact smaller companies and factoring can help deal with those situations as you can receive money very quickly by financing an invoice.
What to be aware when using factoring
Every factoring service is different but they all tend to have some similarities. Among the most common is the requirement to change the receiving bank account on the invoice to the financing company’s account. This alters the payment flow and can also impact the relationship with your customer. It also forces you to decide whether or not to sell the invoice before you send it to your customer.
The terms regarding invoice financing will vary depending on what company you use. Some companies will only pay out a part of the invoice value immediately (in some cases as low as 50%) to protect themselves if the customer doesn’t pay the invoice. The fees associated with factoring can also vary greatly, with some charging very low fees and others up to 10% of the invoice value. There can also be fees such as set-up fees, limit fees, monthly service fees, credit check fees, and fees for not using recourse. Therefore, it is imperative that you are fully aware of what you are agreeing to and what fees you will pay so that factoring isn’t more expensive and complicated than you are expecting.
How is Mynts service different?
The most significant difference with the service we provide is that we don’t involve ourselves in the relationship between you and your customer. When using Mynt you will keep the relationship with your customer. You are also paid 100% of the invoice value and it is deposited into your bank account immediately.
By staying out of your relationships, our service is much simpler than other alternatives. There is less hassle with different payment flows and documents being sent back and forth. You simply select which invoices you want to finance from your receivables and we pay out immediately. Repayment occurs through direct debit where the amortization and fee is withdrawn automatically from your bank account. We charge no set-up, limit, or hidden fees.
At Mynt we believe that all businesses who are doing reasonable well deserve to have access to financing on fair and transparent terms. Therefore, we prefer to work with the most up-to-date data through links to your accounting system. The more information we have access to, the better terms we can offer. Mynt combines the latest technology with common sense to create a better financing option.
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