Factoring Financing – How Food Service Providers Can Benefit From Factoring
In this article, we will discuss how invoice factoring can be a great way for companies in the food service provider industry can get much needed cash flow in a matter of days rather then waiting the 30-60 days it generally takes for a customer to pay their invoice.
Invoice billing is a great service to the client, but often puts a strain on businesses. Companies have to wait 1-2 months before they are paid for services that they have provided that amount of time ago.
They have already had to pay their employees and purchase supplies necessary to complete the job, depleting the amount of cash they have available. Because they have yet to be paid, cash flow problems may arise. Factoring financing is a way for food service providers, such as catering or food distribution companies, to get paid on the invoices upfront, rather then later.
Factoring Financing For Food Service Providers Would Work Like This:
- The food service provider would complete whatever business they have with their client, whether it be providing a service, delivering a product, etc.
- They would then invoice the client
- The company would sell that invoice to a factoring company
- The Factor, if they choose to (this will largely depend on the credit worthiness of the client), will offer between 70% and 90% of the value of the invoice. They will pay these monies in cash.
- The company has the money they need for whatever purposes they want to spend it.
The process is pretty simple. A food service provider, for example, a caterer, would complete a job and then sell the invoice to a third party, the Factor. As long as the business’ client has a good credit history, it should not be a problem finding a factor willing to work with them.
Not only is the process is simple, it is fast. After the initial set-up of about 7-9 days, a business will be able to obtain money in as little as 24 hours. This allows them to quickly receive money for their invoices and not have to wait around 30-60 days, the time available for their customer to pay. When a company is tight on cash and can not afford to wait until their clients pay their invoices, factoring financing can be an excellent option.
It is important to note, however, that if a business has clients with bad credit, it will not be possible for them to use this sort of financing. Because a Factor can not get paid unless they are able to collect on the invoices, they will not be willing to work with businesses whose clients are bad credit risks.
This is largely because they can’t be confident that they will be able to recoup the money they paid for the invoices. Any company considering this option must keep this in mind because their client’s credit worthiness can make or break any potential deal.