Factoring is a financial transaction where a corporation buys an invoice or debt from a different company. Companies that regulate factoring in Saskatchewan help their clients’ businesses stay afloat with no upfront fees and complicated credit requirements. These companies also ensure you get professional private consultation every time you need it.
If you are not familiar with factoring, you may get a bit confused about how it proceeds. You can use this step-by-step guide to help you clearly understand the processes involved in the thus financial transaction as you anticipate receiving the cash for your business.
Step One: Selling Invoice
In this process, the invoices of your business play an important role. To use this financial service, you must ensure you clear your accounts receivables.
You must come up with several receivables you are selling to your factor. You may opt to sell all your receivables or a few of them depending on the cash your business needs and the number your factor wants to buy.
Step Two: Ensuring Your Invoices are Verified
Your factor carries out this step because he must verify the accounts receivables being sold before you receive your cash. If your clients have excellent credit histories and the records show they pay their bills on time, your application is approved by the factor for financing.
However, it should be noted that the companies that regulate factoring in Saskatchewan notify your client where their payments should be sent once approval is done.
Step Three: Receiving Payment
You won’t instantly receive all the cash for your invoices, despite being approved. Once the receivable’s value of your accounts is determined, the factor will send you 80% of the amount. You owe no one an explanation of how you will use the cash flow.
Some of the popular way business owner uses this cash include:
- Paying vendors
- Paying the staff
- Buying inventory
- Paying for digital marketing channels like the newspaper or
- Expanding the business through attracting more clients by increasing sales
- Settling common expenses like insurance or utility bills
Step Four: Clearing Factor Fees
While you receive 80% of the total amount from your invoices’ value, the remaining 20% is reserved until your clients pay the full amount for the receivables. The company deducts its fee from the remaining amount once the cash is paid.
The remaining 20% is directly paid to you once. Sometimes the factor where each of your customers receives the original invoice from the factor.
Step Five: Sell new Invoices or Complete the Transaction
Once you receive the remaining cash from the reserved amount, you have the option of ending the transaction or selling more invoices. If you want your business to continue growing by maintaining its cash flow, you can keep selling accounts receivables.
Various business owners avoid debts by using this financial option to sustain their businesses since it helps them avoid debts. You don’t have to keep paying your lender each month, since this transaction does not depend on your credit score. You can confidently proceed now that you are aware of the steps involved in this transaction.